Ontario’s Economy To See Worst Non-Recession Growth Since Early 80s: FAO

Ontario’s Economy To See Worst Non-Recession Growth Since Early 80s: FAO

Canada’s largest provincial economy is unlikely to be the driver of an economic boom any time soon. The Financial Accountability Office (FAO) of Ontario released its economic and budget outlook for 2024, and it was not very rosy. The non-partisan government agency, tasked with providing the public with independent analysis and forecasts of the economy, says the province has been significantly underperforming global growth. Ontario’s economy is forecast to expand at one of the slowest rates in a generation, with an elevated unemployment rate that’s expected to last for years. Oh yeah, and they see risk slanting further to the downside. 

Ontario’s Economy On Track For One of Its Worst Performances Ever

Ontario’s economy is on track for unusually poor performance. The FAO projects real GDP will rise 1.1% in 2024, slightly slower than the 1.2% seen in 2023. The agency emphasized that last year was already a “sharp” drop off from the previous year, which was more than 3x larger.

Source: FAO.

The FAO contrasted this with global growth projections, and it isn’t a pretty picture. Average real GDP is expected to hit 3.2% in 2024, almost 3x the rate seen in Ontario. Similarly, global growth was the same rate in 2023.   

In other words, they’re emphasizing that the slowdown seen in Ontario isn’t a result of a global slowdown. The world is booming, but Ontario is on track for the “slowest non-recession growth over a two-year period going back to the 1980s,” according to FAO Chief Economist Paul Lewis.  

Lewis and his team see this creating some good and bad news. 

The good news is inflation will moderate. Well, it depends on the impact of why it’s moderating whether it’s good news to you. The FAO estimates Ontario’s CPI will rise 2.6% in 2024, followed by 2.1% in 2025. The forecast range from 2026 through 2028 will average 2.0%, right at the central bank’s target. 

Source: FAO.

Getting inflation back to target is good news, but it requires some bad news to get there. Typically inflation is elevated due to excess demand for goods, pushing prices higher. Robust demand is the result of a strong economy, and that demand has secondary impacts such as creating jobs. 

When inflation begins to moderate, it’s usually due to the exact opposite impact. Weaker demand and excess supply means slower economic growth and more unemployment. That’s precisely what they see in Ontario’s future.   

Ontario To See Unemployment Elevated Through 2028

Ontario is forecast to see unemployment climb substantially and stay elevated for quite some time. The unemployment rate is forecast to rise 1.2 points to 6.9% of workers in 2024. They expect the rate will moderate next year to 6.2%, a trend that will last through 2028 on average. 

Source: FAO. 

Does Ontario’s Outlook Sound Gloomy? Risks Slant Lower

The agency warns there are risks to this outlook, which was apparently an optimistic look. “Ontario’s economic and revenue growth could be negatively affected by ongoing geopolitical risks or if inflation and interest rates remain higher for longer than anticipated,” explains the report. 

They acknowledge that global experts see interest rates potentially remaining elevated. But an even bigger risk is trying to figure out how serious Canada is about tapering its record population growth. 

“While the FAO has incorporated lower expected population growth in its projections based on the federal government’s announced limits on temporary residents over the next three years, the eventual impact on Ontario’s economy depends on the federal government’s final targets and implementation,” the agency warns.