Ontario's Economic Recovery will be Better than Average - BMO

    TORONTO, June 25 /CNW/ - Although turmoil in the Ontario auto sector has
led to production cuts and job losses, and weak U.S. demand continues to weigh
broadly on the province's manufacturing activity, Ontario will see
above-average growth in 2010, according to the Provincial Outlook report
released by BMO Capital Markets Economics.
    "Real GDP will likely contract 3.1 per cent this year, with a 2.0 per
cent recovery likely in 2010 - slightly above the national average," according
to Robert Kavcic, Economist, BMO Capital Markets.
    The ongoing restructuring of the North American auto sector has crippled
a key foundation of the Ontario economy. New vehicle production came to a near
standstill to start the year, down almost 50 per cent year-over-year through
May. Meantime, plant shutdowns and closures abound, leading to rampant job
losses in the sector.
    "Employment in the auto assembly and parts sectors has fallen to the
lowest level since the early-70s," said Kavcic. "As the year progresses, more
weakness is expected. As a result, Ontario's unemployment rate is likely
headed toward 10 per cent for the first time since 1994."
    Further slack in the labour market will keep consumer spending under
pressure for the rest of the year. Retail sales were down 5.0 per cent
year-over-year in the first four months of the year, the worst performance
East of Alberta. "One reason is waning support from the services sector,"
noted Kavcic. "While services were a source of strength until mid-2008, after
that point the sector has shed more than 60,000 jobs."
    However, with the U.S. economy likely to embark on a recovery by the end
of the year, the stage is set for a rebound in auto sales in 2010. Meantime,
an aggressive $27.5 billion infrastructure spending plan by the Province over
the next two years will be topped up with an additional $5 billion in federal
funding-that's nearly 3 per cent of GDP, and should help produce an
above-average recovery in 2010.
    Longer-term challenges remain, however, and Ontario is not in a position
to outperform on a sustained basis-one particular challenge will be the broad
manufacturing sector's ability to deal with a loonie that is likely to trend
back toward parity.
    The Province of Ontario's aggressive budget also provided a mix of tax
relief for individuals and businesses, and a proposed harmonization of the
sales tax. The budget penciled in a $14.1 billion fiscal 2009/10 deficit,
which has since been raised to $18.5 billion in the wake of auto-sector aid.
The Province's long-term plan is to return to balance by fiscal 2015/16.
    The complete report can be found at www.bmocm.com/economics.

For further information:

For further information: Media Contact: Peter Scott, Toronto,
PeterE.Scott@bmo.com, (416) 867-3996; Internet: www.bmo.com

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