Report: Ontario deficit to fall -- but the wage freeze continues

Research by Robert Kavcic of BMO Nesbitt Burns suggests that Ontario deficit numbers will be favorably revised (again), in the near term, due to better than expected economic growth (and job growth).

"Ontario saw annualized real GDP growth of 6.8% and 6.2% in the two quarters through 2010Q1, the strongest pace since 1999. Our Provincial Economic Momentum Index (PEMI), made up of 36 monthly indicators, also suggests that activity in the province is growing at a full standard deviation above the trend rate, and points to further upside in real GDP growth in the months ahead.Employment has been a key support to the province’s momentum, sprinting 3.1% in the past year, the fastest rate in Canada and nearly recouping all of the job losses seen during the recession…. Regardless of how growth plays out in the quarters ahead, the recent performance of Ontario’s economy has been substantially better than the Province expected in its FY2010/11 budget.”

While the bank report (predictably) supports public sector spending restraint, it recognizes that such policies will “weigh on economic growth as public-sector employment and wage growth are stunted... We saw the early stages of this restraint this week when the Province and union leaders met to discuss wage freezes for about 1 million workers.” (My emphasis. – DA)

From another perspective, the official rationale for the government's wage freeze is wearing thin.  The policy, however, continues.

A link to the report is here (starting page 7).


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