Central Canada to Feel Economic Downturn Most, BMO Report

(CEP News – Sean McKibbon)

Ontario and Quebec are set to take the biggest hit from the economic downturn in 2009, a BMO report on provincial economies says.

Ontario, teetering on the edge of recession, will finish 2009 with negative gross domestic product (GDP) growth of 2.3%, while Quebec will see its economy shrink by 1% this year, the report released Wednesday said. Ontario is expected to have finished 2008 with a 0.2% decline in GDP while BMO forecasts Quebec finished the year with a 0.2% GDP increase.

Manufacturing and export problems driven by crumbling U.S. demand are weighing heavily on both provinces, BMO economist Robert Kavcic wrote in the report. But, while the Quebec government is likely to keep its budget balanced in 2009 and 2010, Ontario is set to end a three-year run of balanced books with a $500 million slip into deficit territory.

“The challenges facing Central Canada are well documented-a manufacturing sector under siege amid plunging auto sales and a deep U.S. recession crimping export demand. Ontario's export sector has weighed heavily on growth, with real net exports negative for the first time on record dating back to 1981. As the downturn continues, Ontario's economy will contract further in 2009. Quebec, with its more favourable manufacturing mix, will fare slightly better,” Kavcic's report said.

The country as a whole is forecast to have finished 2008 with a 0.7% expansion in GDP, the report said. However the Canadian economy is forecast to contract this year by 1.3%, according to BMO.

Western Canada is also seeing a darker outlook, though not as bleak as that of Central Canada. Oil prices have fallen well below the break-even point for marginal oil sands projects, and tighter credit conditions have squeezed project financing, Kavcic said. Read the complete article here.