Ontario economic outlook positive; RBC forecasts 2.3 percent growth in 2012

A report from RBC says Ontario’s economy is showing signs that it’s on track for modest growth following a slowdown in activity earlier this year.

The RBC Economics Provincial Outlook is forecasting that Ontario’s economy will grow by two percent in 2011 and 2.3 percent in 2012.

The RBC report indicates that the earthquake and tsunami in Japan earlier this year severely disrupted Ontario’s vehicle production. But it says the pace of auto production has trended higher since August, and there was even a notable acceleration in November.

Other Ontario manufacturing industries are also beginning to heat up – particularly machinery, primary metals and fabricated metal products.

However, RBC chief economist Craig Wright notes the forecast hinges on there not being any major slippage in the European sovereign debt crisis.

“We have seen further recovery in the manufacturing sector, thanks in large part to rising vehicle production where we see plenty of room for further gains going forward,” Wright said.

“As U.S. demand for Ontario goods strengthens, we expect manufacturing sales to continue to increase and contribute to an overall modest acceleration in provincial economic growth next year,” added Wright.

On the other hand, the RBC report noted the provincial labour market has experienced some ups and downs this year. After starting off strong — with the creation of 110,000 net new jobs — employment in the province has shifted down several gears in recent months; the unemployment rate increased to 7.9 percent by November.

So far, there has been limited impact on consumer spending and demand for housing in the province — both have shown sustained, moderate increases in the second and third quarters of this year.

“We believe that the job weakness will soon run its course,” said Wright. “However, any further deterioration could have a negative affect on a number of sectors in 2012, including the housing market.”