Ontario’s Economic Resilience and Challenges: Insights from Marc Desormeaux

Small Business Canada

Marc Desormeaux, Principal Economist at Desjardins, shares insightful analysis on Ontario’s economy with CanadianSME Small Business Magazine, highlighting its unexpected GDP growth amidst a national downturn in Q3 2023. This growth, driven by strong car production and a resurgence in residential investment, faces sustainability challenges due to anticipated slowdowns in exports and the impact of higher borrowing costs. Despite a rapid population increase, consumer spending and residential investment have declined, hinting at a cautious outlook amid economic uncertainties and high living costs. Marc also touches on the province’s fiscal future, suggesting that while immediate growth indicators are positive, looming recession risks and ongoing affordability issues could shape Ontario’s economic trajectory in 2024.

Marc Desormeaux is Principal Economist, Canadian Economics at Desjardins. He combines a global perspective with deep knowledge of Canada’s provinces and public policy landscape to tackle the most pressing economic questions facing Desjardins’ members and clients. Marc previously worked as a senior economist at Scotiabank and as an economic forecaster at the Conference Board of Canada. He is the creator of Desjardins’ quarterly Provincial Economic Outlook and is frequently sought out by media—in both official languages—for his views.


Ontario’s economy has demonstrated a notable GDP outperformance in Q3 2023, particularly in comparison to the national decline. What factors do you attribute to this success, and how sustainable do you believe this trend is in the face of current economic challenges?

We’d highlight two factors that helped Ontario’s economic growth rate outperform the national average last year and expect both to ease in 2024. One is strong car production, which continued to recover from the pandemic- and supply chain-induced shutdowns of 2020–21. This recovery supported export growth in early 2023. But car production is expected to ease this year. Combined with softer US economic growth, that should weaken Ontario exports in 2024. Residential investment also experienced solid gains after the Bank of Canada paused its interest rate tightening campaign, but we expect this component to continue to feel the pain of much higher borrowing costs in the first half of this year.


With the recent downward revisions to the household saving rate in Ontario, what impact do you foresee this having on consumer behavior and the overall economic resilience of the province?

The downward revision to the saving rate means that households have less of a financial cushion than the data previously suggested. Going forward, this could hold back growth in consumer spending, as households may reduce discretionary spending or opt to build up bigger reserves in the face of slowing economic growth and labour market uncertainty.


Despite population growth, Ontario has seen a decline in household consumption and a significant drop in residential investment. How do you interpret these trends, and what are their potential implications for the province’s economy in 2024?

These trends suggest that consumers are pulling back on spending amid a high cost of living, elevated borrowing costs, and economic uncertainty. For household spending growth to be flat when Ontario’s population experienced its fastest expansion in more than 60 years, underlying consumption trends must be weak. We expect household consumption gains to continue to be held back by high interest rates in the first half of 2024, weakening the province’s economy.


The housing markets in Ontario, especially in Toronto, have shown some momentum at the beginning of 2024. In your view, how will this affect the overall housing affordability and the real estate market dynamics in the near future?

Overall, we expect housing affordability to remain stretched in Ontario over the next two years. Some prospective buyers appeared to come off the sidelines in late 2023 as mortgage rates eased. Easing mortgage rates partly reflected expectations of future rate cuts, and indeed, when the Bank of Canada eventually cuts borrowing costs in mid-2024, that should reduce mortgage carrying costs. But the resulting boost to housing demand should also put upward pressure on home sales prices, offsetting the potential affordability gains from lower rates. And home values are still very high relative to incomes, even after the soft patch of last two years.


Considering the current economic indicators, what are your projections for Ontario’s economy in the next fiscal year, particularly in terms of tax revenues, government spending, and non-residential investment activity?

The fiscal outlook is uncertain for all Canadian provinces. In Ontario’s case, nominal GDP growth for the first three quarters of 2023 was stronger than the rate forecast for the full year in the province’s mid-year fiscal update. That suggests stronger tax revenues than were projected at that time. However, if a recession occurs in the first half of this year as we expect, that could reduce revenues—and increase the forecast fiscal deficit—relative to government expectations. The good news for Ontario is that its last fiscal plan set aside more than $5 billion in contingencies for the next two fiscal years. These can be used to cover any unexpected fiscal shortfalls if needed.

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