Ontario's economy caught in the U.S. vortex, says RBC



    TORONTO, Oct. 8 /CNW/ - Struggling to resist the pull of a weakening U.S.
economy, Ontario's economic growth is expected to stall in 2008, and improve
only marginally to 0.4 per cent in 2009, according to the latest provincial
outlook released today by RBC.
    "With the U.S. economy slipping into recession, the vortex created will
be nearly impossible for Ontario to miss," said Craig Wright, senior
vice-president and chief economist, RBC. "While strong economic ties with our
southern neighbour paid significant dividends during the economic boom of the
past two decades, those ties have become a ball and chain around Ontario's
ankle, as export demand has soured."
    A technical recession was narrowly avoided in the first half of this
year, as economic growth rebounded in the second quarter following a
contraction in the first. Unfortunately, the factors that contributed to the
bounce back of activity - an inventory rebuild, increased government spending
and a rebound in housing construction - are not expected to be forceful
contributors in the period ahead. More importantly, real net exports have
turned negative and will remain a central concern for 2009.
    The report also noted that Ontario's robust domestic conditions are
starting to show cracks in the foundation. Provincial employment has recently
taken a hit; housing markets are cooling rapidly; and the residential
construction sector has become extremely volatile - with the majority of
activity taking place on the multi-unit side. If negative sentiment continues
to spread, these cracks could widen further, testing the resilience of other
strong-performing sectors like consumer spending.
    While Ontario's economy should continue to benefit from public
infrastructure programs, low interest rates and fiscal relief at the federal
level, overall performance is expected to be at its weakest since the
recession of the 1990s, noted Wright.
    The outlook for provinces has generally darkened as a result of the
recent dramatic turn in the year-long financial market crisis. The U.S.
economy now appears to be in recession with Europe, the U.K. and Japan also
sinking fast. While Canada is in better position with its financial sector
less heavily impaired, overall growth will be substantially weaker than
previously anticipated.
    Among the provinces, Saskatchewan will lead the way this year and next in
terms of economic growth, with Manitoba closely behind. The Atlantic region is
expected to display continued resilience and should sustain a moderate pace of
expansion for the most part. Conditions in the most western part of the
country are on a deteriorating path. Eroding housing situations and rapidly
slowing growth in consumer spending have prompted downward revisions to the
forecasts for British Columbia and Alberta. With weak external trade
continuing to exert a toll, cracks have appeared in the domestic foundations
of Ontario and Quebec. Ontario will likely see its growth evaporate.

    The RBC Economics Provincial Outlook assesses the provinces according to
economic growth, employment growth, unemployment rates, personal income
growth, retail sales, housing starts, and the Consumer Price Index.
    According to the report (available online as of 8 a.m. E.D.T., at
www.rbc.com/economics/market/pdf/provfcst.pdf) provincial forecast details are
as follows:

    
                    Real GDP           Housing starts         Retail sales

                                         Thousands
                07     08     09      07     08     09      07     08     09
                --     --     --      --     --     --      --     --     --
    NFLD.      9.1    0.2    1.3     2.6    2.8    3.0     9.0    8.0    4.0
    P.E.I.     2.0    1.9    1.4     0.8    0.7    0.5     7.7    5.5    3.5
    N.S.       1.6    2.0    2.0     4.8    4.2    3.2     4.2    5.5    4.0
    N.B.       1.6    2.0    2.5     4.2    4.1    3.3     5.7    5.5    4.0
    QUE.       2.4    0.7    1.2    48.6   45.7   39.0     4.6    5.5    3.5
    ONT.       2.1    0.0    0.4    68.1   75.0   66.5     3.9    5.0    2.8
    MAN.       3.3    3.1    2.3     5.7    5.4    5.4     8.8    8.0    5.5
    SASK.      2.8    3.9    3.5     6.0    6.8    5.3    13.0   12.0    7.5
    ALTA.      3.3    2.2    3.0    48.3   30.2   31.3     9.3    1.5    6.5
    B.C.       3.1    1.2    2.1    39.2   34.8   26.0     6.7    3.0    6.5
    CANADA     2.7    0.9    1.5     228    209    183     5.8    4.7    4.3


                  Employment                CPI

                07     08     09      07     08     09
                --     --     --      --     --     --
    NFLD.      0.7    2.0    0.6     1.4    3.1    2.1
    P.E.I.     1.1    1.7    0.5     1.8    3.8    2.4
    N.S.       1.3    1.1    0.9     1.9    3.6    2.3
    N.B.       2.1    0.9    0.9     1.9    2.2    2.1
    QUE.       2.3    0.8    1.1     1.6    2.5    2.0
    ONT.       1.6    1.5    1.2     1.8    2.6    2.0
    MAN.       1.6    1.8    1.5     2.1    2.5    2.6
    SASK.      2.1    1.6    2.0     2.9    3.4    2.7
    ALTA.      4.7    2.6    2.1     4.9    3.7    2.9
    B.C.       3.2    2.4    1.4     1.7    2.5    2.0
    CANADA     2.3    1.6    1.3     2.1    2.7    2.2
    





For further information:

For further information: Craig Wright, RBC Economics, (416) 974-7457;
Robert Hogue, RBC Economics, (416) 974-6192; Jackie Braden, RBC Media
Relations, (416) 974-2124


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