In the News

Ontario economic recovery to be modest, pre-pandemic output will not be reached until 2022

Twitter Icon Facebook Icon LinkedIn Icon Print Icon Email Share Icon
Central 1 logo

Toronto, ON, October 29 2020 – After an initial burst in activity since the restart in summer, the Ontario economy has started to settle into a muted recovery and will not see pre-pandemic levels of activity until early to mid-2022, according to Central 1 Regional Economist Edgard Navarrete.

In Central 1’s latest Ontario Economic Analysis, Navarrete said: “Annual real gross domestic product (GDP) is forecast to decline 6.0 per cent in 2020, followed by growth of 4.4 per cent in 2021. Economic output is not expected to return to 2019 levels until mid to late 2022 with real GDP forecast to grow by 2.7 per cent in 2022 and 1.8 per cent in 2023.”

In 2020, annual average employment growth will recoil 5.2 per cent contributing to an unemployment rate which will settle at 9.8 per cent. Navarrete suggests the Ontario economy will be impacted not only by significant labour market uncertainty, but also by continued public health policies, travel restrictions, increased savings by households for a rainy day and the absence of a widely available vaccine.

“We anticipate an effective vaccine to be made available by early 2021, but deployment lags will mean a slow road back for the economy,” said Navarrete. “Current public health directives such as mask wearing, physical distancing, and controls on congregation sizes could possibly continue for most of 2021 and points to ongoing struggles for businesses and the likelihood of more permanent closures,” he added.

The accommodation and food services sector has been hard hit and the sector’s contribution to real GDP is forecast to fall 27.7 per cent in 2020. He suggests pre-pandemic output in this sector is not expected to return until mid-decade, around the time many experts are calling for air travel to recover.

Retail sales, another area with constant client exposure will see significantly lower revenues in 2020 as consumers remain skittish and wallets closed. Navarrete said that greater use of e-commerce will support some revenue growth in this sector but not enough to offset less foot traffic at shops.

Not all services-sectors will fare poorly in 2020. “Those able to pivot to online or towards remote work to protect their employees such as professional and scientific services, finance and health will continue to remain relatively unscathed and face shallower losses,” highlights Navarrete. However in 2020, growth will remain modest as businesses will be very cautious regarding expansion plans.

New home construction, a lagging indicator, is expected to rise 17.1 per cent in 2020 to 80,800 units reflecting pre-pandemic demand and sales. Navarrete states: “Post 2020, new home construction will range between 73,200 units and 74,400 units from 2021 to 2023 below the 2017 to 2019 average of 75,600 units on lower population and household formation growth and big-ticket household spending.”

Global travel restrictions, closed consular services offices, and largely closed Canadian borders will all put significant downward pressure on international flows of permanent and non-permanent residents into Ontario in 2020 slowing down population growth. Post 2020, population will grow by 0.7 per cent in 2021, 1.2 per cent in 2022 and by 1.1 per cent by 2023 reflecting the ongoing restrictions through the second half of 2020.

According to Navarrete, net inter-provincial and net international migration levels are not expected to return to pre-pandemic levels in the forecast horizon. He adds: “This will have adverse multiplier effects on consumer demand, post-secondary education demand, and consumer spending among other areas keeping the post pandemic economic recovery range bound.”

Highlights include

• Post-summer Ontario’s economic recovery will be very muted
• Real GDP expected to decline by six per cent in 2020, in 2021 and 2022 real GDP will expand by 4.4 per cent and 2.7 per cent respectively and by 2023 settle at 1.8 per cent growth
• Ontario economy not expected to return to pre-pandemic levels until 2022 in baseline scenario, further shocks such as prolonged lockdowns will hamper and draw out recovery further
• Annual unemployment rate to average 9.8 per cent in 2020 and gradually move to 6.6 per cent by 2023
• Population growth to remain below trend for the entire forecast largely due to fewer immigrants

Read the Ontario Economic Analysis 2020-2023.

– ENDS –

About Central 1
Central 1 is a preferred partner for financial, digital banking and payment products and services – fuelling the success of businesses across Canada. With $21.3 billion in assets, we leverage our scale, strength and expertise to power progress for more than 250 credit unions and other financial institutions, enhancing the financial well-being of more than 5 million customers from coast to coast. For more information, visit www.central1.com.

Contact
Meadhbh Monahan (pronounced ‘Maeve’)
Communications Specialist
Central 1
T 604 737 5068
E mmonahan@central1.com