THIRD WAVE SLOWS REBOUND, VACCINE PROGRESS SETS UP BETTER H2

  • We have revised our forecast for Ontario lower in respect of strict third wave lockdown measures whose impacts are evident in the economic data.
  • We expect exports to rally this year, with more meaningful gains in 2022.

Ontario’s third wave of COVID-19 was severe and prompted some of the strictest containment measures implemented to date in Canada according to both the Oxford University and Bank of Canada measures. Incoming data suggest that had a meaningful impact on economic activity. In April—when those measures came into effect—full-time jobs fell by more than 2% and hours worked dropped by almost 8% m/m according to our own seasonal adjustment calculations—the most since the peak lockdown period. We suspect that Ontario’s economic growth will come in weaker than the national average in the first and second quarter of 2021. The significant pickup in vaccination rates and waning of infection rates since third wave restrictions came online bodes well for a bounce-back as we approach Q3.

For automobile manufacturing output—responsible for about a third of Ontario export values—we anticipate a solid gain at the national level this year to be followed by a stronger rise in 2022. That reflects production guidance from automobile companies and should result in a similar trajectory for the province’s external shipments. Last year, Canadian production fell by 28%. Other key Ontario export products include gold, silver, iron, and steel; we still expect all to benefit from metals price gains this year as the global industrial sector recovery proceeds.

Our forecast easing of residential investment in Ontario as the year progresses mirrors and is the anchor of the national-level trajectory. Housing resales and starts have both fallen back to start Q2, likely impacted by limited availability. As the year progresses, we expect stretched affordability and rising mortgage rates to cool the pace of residential sales activity, with a transitory effect from new homebuyer qualification rules. Yet, building activity should remain elevated relative to historical standards, broadly supported by low borrowing costs and tight supply-demand balances. Faster border reopening and population growth present upside potential.

The pace of immigration’s recovery remains important for Ontario. The province had witnessed a year-over-year increase in newcomer admissions from January to April. As in other jurisdictions, it has seen a significant rise in the number of permanent residents who previously held temporary worker and international study permits. We remain cautiously optimistic about a full recovery given rising vaccination rates, national immigration targets, and the province’s status as a desirable destination for workers.

Ontario’s 2021 budget projects a return to balance by FY30—the longest timeline of any province—but we see upside potential for the bottom line given conservative economic forecasts and considerable prudence built into the plan. Read our report here. Total outlays scheduled under the Ontario Capital Plan were increased by $4 bn during FY21–23 versus the November 2020 Budget. The 13% increase penciled in for FY22 should help support the recovery.



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