On February 19, 2019, the Ontario Chamber of Commerce released its third annual Ontario Economic Report (OER), offering a unique perspective on the experiences of businesses of all sizes across the province. Through the Business Confidence Survey, the Business Prosperity Index, and the Economic Outlook, this report presents a candid look at private sector sentiment and opportunities for economic growth for the year ahead.
The key takeaways from the report include:
- Confidence in Ontario’s economic outlook has improved, but still lags behind the provincial average: 24 percent of survey respondents in the Northeastern Ontario region expressed confidence in the provincial economy, compared to 30 percent of provincial respondents.
- Northeastern Ontario’s businesses are gaining confidence in themselves. 58 percent reported confidence in their own organization’s economic outlook, an eight-point increase from last year.
- Business in Ontario cite the cost of doing businesses and the ability to recruit and retain qualified staff as their most pressing challenges.
Read the Ontario Economic Report here.
Business Confidence Survey
The results of the 2019 Business Confidence Survey show a shift in how business views both its own success and the success of the Ontario economy more broadly. Expectations for 2019 are higher than they were in 2018, and respondents have found reason to be cautiously optimistic.
Business confidence in their own organizations as well as the broader economy both increased by seven percentage points in 2019, while negative sentiment towards the province’s economic outlook has dropped over 20 percentage points since 2018. Similarly, there has been a 13-percentage point rise in businesses expecting revenues to increase over the next six months, compared to a 13-percentage point decline in businesses believing revenues will decline since 2018.
All of these are positive indicators, but challenges relating to the cost of doing business in Ontario and the ability for firms to successfully recruit and retain talent loom large, undermining the province’s economic potential. Ontario’s economic forecast calls for slower GDP and job growth in 2019, as the economy pushes against its capacity limits, which is consistent with the OCC’s finding that the majority of survey respondents project no staffing increases in the next six months.
Ontario’s policymakers should be acutely aware of these potential vulnerabilities and develop policies with the aim of fostering competitiveness, placing particular emphasis on the issues identified by businesses in this survey.
Business Prosperity Index
The Ontario Chamber of Commerce, in partnership with the Canadian Centre for Economic Analysis, has developed the Business Prosperity Index (BPI), a measure of the ability of Ontario’s businesses to invest in the future. The BPI looks beyond GDP figures and instead considers the process of wealth generation from business production and investment activities. The estimated BPI for 2018 for all Ontario businesses is 58.1 percent, an increase of 1.8 percentage points since 2017.
While the BPI suggests total business prosperity in Ontario is strong, challenges remain with respect to business fundamentals, particularly in the non-financial industries.
Business prosperity in Ontario has benefited from the significant financial resources available for productive use, yet the share of those resources used to produce goods and services continues to deteriorate. Improving the rate of productivity growth is a fundamental aspect of unlocking the build-up of under-invested financial resources. Given that Ontario’s productivity growth has averaged 1.2 percent since the early 1980s and is currently below the national average, there is room—and need—for improvement. Similarly, Canada’s share of global foreign direct investment (FDI) has declined over the years. Reducing barriers to FDI will help Ontario become a more attractive place for both domestic and international firms to invest.
Equally as important is continued capital investments in both the public and private sector to support long-term economic prosperity and the efficient execution of long-term public infrastructure plans, designed to account for the changing economy. Ultimately, supporting long-term prosperity requires regulatory certainty and efficiency, investment in skills, and harmonized capital investments in both the public and private sector.
Ontario’s Economic Outlook
Over the next year, Ontario’s economic growth is forecasted to slow as the province confronts capacity limits, a likely increase in interest rates, and a predicted reduction in government spending. Economic growth varies greatly across Ontario; as such, it is critical for policymakers to consider the unique challenges faced by each region.
General trends such as increasing labour costs, an aging population, and growing urbanization have had disproportionate impacts in areas across the province. This is evidenced by stagnant population growth and high unemployment in Northern Ontario compared to rapid population growth and decreasing unemployment in major urban centers. This reality is also reflected in the Business Confidence Survey, which finds that firms in Southwest Ontario and the GTA are more likely to express confidence in the economy than the rest of the province.
See here for the Bank of Montreal’s regional Economic Outlook for Ontario.
Unlocking Ontario’s Economic Potential
Ontario is facing a projected slower growth rate, yet the province is still expected to outperform Canada on a number of key indicators, including GDP, employment, and population growth.
Major issues like the province’s fiscal situation, high input costs, an aging population, and the infrastructure deficit are still top of mind for Ontario’s businesses and will require thoughtful policy solutions. Beyond this, there are two interconnected issues the province must successfully navigate to realize its potential: addressing the skills mismatch, which has been estimated to cost up to four percent of Ontario’s GDP in forgone revenue, and addressing regional economic disparity to foster more inclusive economic growth.
The problem of finding and recruiting talent is particularly acute in rural Ontario, where a series of technological and demographic shifts have brought a unique set of challenges. Major developments such as intensified cross-border economic competition, an aging population, urbanization, and the upheaval of traditional manufacturing and agriculture sectors have been deeply felt in Ontario’s Indigenous and rural communities as well as small- and medium-sized towns.
Since 2003, employment growth has largely been concentrated in the Greater Golden Horseshoe, while other regions have experienced slow or even negative growth. Between 2003 and 2017, the GTA and Central Ontario (defined as the area surrounding the GTA) accounted for 93 percent of the 915,000 net new jobs created in the province, while Northern Ontario’s net employment numbers declined by 23,600 jobs over the same period. Meanwhile, average GDP growth during the same timeframe has been higher in the GTA (2.3 percent) and Central Ontario (2 percent), with Eastern Ontario falling somewhere in the middle (1.5 percent) and Southwestern Ontario (0.9 percent) and Northern Ontario (0.2 percent) lagging behind.
Ontario’s overall prosperity depends on the strength of its regional economies and 2019 will be a formative year for shaping the province’s trajectory as the government develops new strategies on infrastructure, transportation, and supports for traditional economic sectors.