Economy in Transition Affects Ontario's Performance

Province must focus on factors crucial to productivity growth and improved standard of living

OTTAWA, May 15, 2014 /CNW/ - Ontario's standard of living compared to other provinces and developed countries has slipped in recent decades, giving it a "B" grade, although it still remains a top-10 economic performer. This shift reflects the ongoing economic transition in the province, according to The Conference Board of Canada's first "How Canada Performs: Economy" report card to compare the 10 provinces and 16 advanced countries.

Released today, and building on previous "How Canada Performs" analyses, the Economy report card is the first of six to be produced over the next year on Canadian and provincial socio-economic performance.

"Ontario's economy is still in the midst of a transition that began over a decade ago, when the Canadian dollar was low and the U.S. was a ready export market," said Glen Hodgson, Senior Vice-President and Chief Economist. "That said, Ontario remains a relatively healthy economy compared to its international peers. Its overall "B" grade in 2013 puts it in company of solid economies such as Switzerland, the United Kingdom, Sweden, Germany, and Austria."

  • Ontario is going through a profound economic transition.
  • Ontario remains a relatively healthy economy compared to its international peers.
  • Like most of its provincial counterparts, Ontario has a mediocre record on labour productivity compared with international peers.

Ontario has gotten a short-term bounce because of improving fortunes in the United States. In 2013, Ontario got an "A+" grade for employment growth, due in part to catch-up from the steep job losses during the 2008-09 recession. Ontario received respectable "B" grades on GDP growth and the unemployment rate, although the latter is above the Canada-wide average and is sharply higher than in Western Canada.

In the longer term, however, Ontario faces the prospects of a steady erosion of its prosperity. In the 1980s and 1990s, Ontario earned mostly "A"s and "B"s on GDP growth. Since the beginning of the 2000s, it has failed to earn an "A" grade and has even recorded a couple of "D"s.

Like most of its provincial counterparts, Ontario has a mediocre record on labour productivity compared with international peers. Productivity is the single most important determinant of a country's prosperity over the longer term, as it is a measure of how efficiently goods and services are produced. On labour productivity growth, Ontario gets a "C" grade. The province's productivity level, meanwhile, is slightly below the national average.

Moreover, chronically high fiscal deficits and rising debt levels have limited Ontario's ability to invest much more in education and innovation—factors that are crucial to productivity growth and improved standards of living.

Ontario gets "C" grades on greenfield foreign direct investment both inward (investment in Ontario) and outward (Ontario firms investing elsewhere in the world). Greenfield FDI is investment that expands an existing business or creates a new business, as opposed to a merger or acquisition. The shift in investment from manufacturing to natural resources explains part of the grades—the share of total inward FDI to Canada's manufacturing sector fell from 39 per cent in 1990 to 29 per cent by 2012. The decline of some key high-tech companies centred in the province could provide an explanation for the "C" grade on outward FDI.

The Conference Board will hold an Ontario Business Outlook Webinar on June 18, 2014 at 2 p.m. EDT.

How Canada Performs is an ongoing research program at The Conference Board of Canada to help leaders identify relative strengths and weaknesses in Canada's socio-economic performance. The How Canada Performs website presents data and analysis on Canada's performance compared to peer countries in six performance categories: Economy, Innovation, Environment, Education and Skills, Health, and Society.

This is the first year that provincial and territorial rankings are included in the analysis.

The Education and Skills report card will be released in June.

SOURCE: Conference Board of Canada

For further information:

Yvonne Squires, Media Relations, Tel.: 613- 526-3090 ext. 221

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