1/5/15

Ontario fastest growing province. But public services get zip

Ontario's economy bounds to first among the provinces
Four of the big Canadian banks have come out with new forecasts for the Ontario economy and they all indicate the economy is improving.  

The fall in the price of oil (and, with it, the Canadian dollar) is paying off for Ontario.   

All four banks predict that Ontario will have the fastest growing provincial economy in 2015. 

And all implicitly suggest that the Ontario government's Fall Economic and Fiscal Review is now out of date. (See the chart  below comparing bank and government forecasts.)

On average the banks predict that the economy will grow 0.3% more more quickly in 2014 than the Ontario government predicted in its Fall Economic Outlook and Fiscal Review. Nominal growth (real growth and changes in market prices due to inflation) is predicted to grow half a percent faster.  Similarly, growth is predicted to exceed the government's forecast for 2015 as well, with real growth reaching 2.7% and nominal growth reaching 4.7%.  

By 2015, the new bank forecasts suggest nominal growth will be a little under one percent more than the government's older, fall forecast.

That would mean significant extra revenue for the Ontario government. One percent growth in nominal GDP could mean another $850 million dollars in revenue for Ontario government coffers.  

The recently announced federal government transfer payments to Ontario for 2015/16 (for equalization, health and social transfers) are also much higher than expected.  In fact,  about $450 million more than the $800 million increase the provincial government anticipated for all federal transfers to the province.

With the new growth, the banks are forecasting a significant increase in Ontario employment in 2015, with employment increasing 1.4%, up from just a 0.8% increase in 2014.  Consumer inflation (CPI) is also forecast to fall to 1.4% (down from the government projection of 2% consumer inflation).

The improved outlook from the banks is actually consistent with the government's thinking-- they too have suggested a significant upside for Ontario to lower oil prices and a lower Canadian dollar value.

Who will benefit? It won't be those who benefit from public services.  Despite an improving economy and extra federal cash, the Liberals are sticking to their hard talk on public services.    

Far from real growth, the plan is to cut public services. Indeed, the Liberal government's official plan is to make even sharper cuts in real public services, with 0.6% increase in program spending planned for 2015/16 ($700 million), about a quarter of the cost pressures from inflation and population growth.   

After that it only gets worse, with a minuscule 0.08% increase planned for 2016/17 ($100 million) and minus 0.7% in 2017/18 (minus $800 million).

And there are no signs of any move away from that plan - yet. 



2014
2015
2016
GDP Real
                           %
            %
           %
TD
2.3
2.6
2.3
Royal Bank
2.3
3.1
2.3
CIBC
2.1
2.8
2.9
BMO
2.1
2.4
2.2
Bank Average
2.20
2.73
2.43
Ontario Gov.
1.9
2.4
2.4




GDP Nominal



TD
4.2
4.1
4.4
Royal Bank
4.1
5.2
3.9
CIBC
3.8
4.9
5.1
BMO



Bank Average
4.03
4.73
4.47
Ontario Gov.
3.5
4.4
4.4




CPI



TD
2.3
1.7
2
Royal Bank
2.2
1.4
2.2
CIBC



BMO
2.3
1.2
2.2
Bank Average
2.27
1.43
2.13
Ontario Gov.
2.1
2
2




Employment



TD
0.8
1.3
1.1
Royal Bank
0.8
1.4
1.1
CIBC



BMO
0.8
1.5
1.1
Bank Average
0.80
1.40
1.10
Ontario Gov.
0.8
1.3
1.4

[Photo credit: Lending Memo]

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