Ontario to lag behind national average in new year as resources fuel economy

TORONTO (CP) - The outlook for Central Canada remains grim for the new year as observers suggest a slowing U.S. economy and trouble in the auto sector is hurting exports of manufactured goods. Ontario will feel the brunt of the negative impact because it's so dependent on shipping cars and auto parts to the United States, Scotiabank's chief economist Warren Jestin said Tuesday.

Those exports are expected to continue their downwards trend and help push Ontario below the national average, Jestin said.

"That slowdown suggests to us that Ontario is probably going to be growing under two per cent for the second year in a row," he said. "That's a big change from the 1990s when the economy was booming along at a four to five per cent growth rate."

The national economy will grow at a rate of 2.2 per cent for the year, he said.

In New Brunswick, several large-scale energy projects should help sustain expansion in 2007, with mining activity benefiting from the re-opening of zinc mines amid strong global demand, Jestin said.

British Columbia will continue to outperform the national economy in the new year, led by its thriving non-residential construction, which includes the preparations for the 2010 Winter Olympics. The energy and mining sectors will also contribute to the boost, offsetting slowdowns in forestry.

Unlike B.C., Quebec doesn't have the same thriving fallback sectors to substitute for its forestry sector. Instead, it's suffering from problems similar to Ontario, suggested Doug Porter, senior economist at BMO Nesbitt Burns.

Both provinces rely on the manufacturing sector, which is "struggling mightily" in the strong Canadian dollar and U.S. slowdowns, he said.

The sector has lost nearly 300,000 jobs across the country since 2002, and its output was down four per cent last year compared to 2005, with Quebec and Ontario taking most of the impact.

"I suspect that as we stand right now they're probably two of the slowest growing provinces presently," Porter said.

On Tuesday, the Conference Board of Canada released a rosier forecast, projecting a domestic growth outlook of about 2.7 per cent.

The private-sector think-tank said a lower Canadian dollar could help boost exports.

"I think we're a little more optimistic in terms of our export performance in 2007 than some of the other forecasts out there," said Pedro Antunes, the board's director of national and provincial forecasts.

"We've seen such good income growth basically starting mid-way through 2006, but it will have a lot of impact next year as well," Antunes said.

He cited the reduction of the federal goods and services tax to six per cent from seven per cent and the Universal Childcare Benefit program, which were both started last July by the Conservative government.

The result was more money in people's pockets and a higher likelihood of increased spending habits.

After-tax income growth is expected to moderate at an average of 3.2 per cent for both this year and next year, down from 4.7 per cent in 2006.

© The Canadian Press, 2007