Time will tell!
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Ontario — Looking forward to sunnier days
The upside of having been knocked down by a very tough recession is that things can only get better! On that score, Ontario’s economy can indeed look forward to 2010 after the annus horribilis it has endured in 2009.
Growth is expected to make a return to the province with the help of recovering U.S. demand and still highly simulative fiscal and monetary policy in 2010. Yet, the pace of recovery is most likely to be restrained, at least in the early going, given
the amount of restructuring that will continue to take place, especially in the hard-hit manufacturing sector. Overall employment gains are also likely to be on the moderate side as firms will want to use their current workforce more fully before expanding payrolls. Real GDP and employment in the province are forecast to grow by 2.4% and 1.1% in 2010, respectively, which would be slightly below the national average. In the case of employment, the expected gains would not make up
for the substantial losses (245,000) during the recession until sometime in 2011.
There is evidence that Ontario’s economy has already begun to turn the corner.
After a near-death experience during the first half of 2009, the all-important automotive sector has sprung back to life since summer – thanks in part to the U.S. “cash for clunkers” program that temporarily propped up car sales south of the border.
Although still facing many obstacles, this sector is expected to continue to heal in the year ahead. The housing sector has shown signs of vigour for the past several months, most clearly in the resale market – where activity is back in record territory – but also to a lesser degree in home building.
Driven by some improvement in motor vehicle sales, retail sales have trended higher since about spring after plunging late in 2008. The earlier deterioration in the labour market appears to have stabilized, with the jobless rate no longer surging and even easing a little since mid-summer (although remaining historically high).
Finally, a significant boost to non-residential construction is being felt with public infrastructure spending kicking into high gear. This spending is expected to reach its cruising speed in 2010.
The price for fiscal stimulus, however, is the return of government deficits. In Ontario’s case, the deficit for the 2009-10 fiscal year is now pegged at $24.7 billion, an all-time record for the province. With shortfalls in the following two years also revised higher to $21 billion and $19 billion, respectively, the task of balancing the provincial books within the next five to six years will be challenging and will require some element of fiscal restraint once the economy is back on track.
Partly offsetting any negative impact in the medium-term will be the benefits of implementing the Harmonized Sales Tax (HST) on July 1, 2010.
Although the HST will result in certain currently exempt products and services being taxed, moving to a value-added tax structure will make the tax system more economically efficient and will improve the competitiveness of Ontario businesses by lowering the cost of doing business in the province.
I hope this finds you Happy and Healthy!
All the Best!
A. Mark Argentino
P. Eng. Broker
Specializing in Residential & Investment Real Estate
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