Ontario has not recovered from the Great Recession

JAMISON STEEVE It’s been a decade since the 2008-09 Great Recession that caused financial hardship for many. Although Canada and its provinces fared better than most other jurisdictions due to stringent financial regulations, economic growth in the period since has followed a lower trend line, meaning less income for household consumption, less tax revenue for government and less revenue to spend on productivity-enhancement for businesses.

Ontario’s Panel on Economic Growth and Prosperity assesses Ontario’s competitiveness by calculating the prosperity gap — the difference between Ontario’s gross domestic product (GDP) per capita and that of comparable peer jurisdictions. This year, we decided to review Ontario’s economic growth since 2000, focusing on the impacts of the Great Recession in 2008-09.

As is often the case, many of the problems we have faced since our first annual report persist, or have worsened.

While the prosperity gap shrank to just $1,800, measured as the difference in GDP per capita between the North American peer median and Ontario, during the recession this was due to the larger contraction of peer economies, not a result of improvement in Ontario. By 2017, the prosperity gap had grown to $5,700, greater than prerecession levels.

While many traditional economic measures have indicated that the province is doing well enough for the Bank of Canada to implement multiple rate hikes, there continues to be discourse around the recession’s lingering impacts on the well-being of Ontarians. Despite Ontario’s relative social cohesion, in many ways “two Ontarios” have emerged in the years since the recession.

For example,12 urban census divisions, including Toronto, Kitchener-Waterloo and Ottawa, are now attracting more foreign direct investment (FDI) than before the recession — creating jobs, encouraging innovation and bringing talent to their region — while 37 predominantly rural or northern census divisions have either lost FDI or have yet to ever attract it.

Additionally, while many Ontarians have benefitted from the significant appreciation of real estate assets, a growing portion of the population is struggling with housing costs that are escalating much quicker than wages, particularly in the big cities that are our economic engines.

In fact, between 1999 and 2016, the median net worth of households in Ontario that own real estate nearly doubled from $371,000 to $728,000, while the median net worth of households without real estate dropped $2,000, from $17,000 to just $15,000 during the same time frame

The past six months have brought about great change to Canada and Ontario’s potential economic future. Nationally, the negotiations of the new Canada-United States-Mexico Trade Agreement created uncertainty for Ontario as it sends 72 per cent of exports to the United States.

The crux of Ontario’s prosperity gap is a continual productivity challenge. Updating our trade policy is one way we could improve our productivity.

Currently, Canada exports mostly manufactured goods to international destinations, with the bulk heading to a handful of U.S. states. This is despite Ontario’s relative strengths lying in the service sector, including financial, educational and health.

Also, there are jurisdictions within our own country we could trade more with. It is estimated that reducing external interprovincial trade costs by10 per cent could increase Ontario’s real GDP by 1.8 per cent.

Improving our productivity won’t happen overnight and in the meantime, many Ontarians are struggling. By implementing policies to cool speculation in the housing market, such as a tax on vacant homes, simplifying regulations that drive up the cost of building new residential units and building more medium-density housing in neighbourhoods historically comprised of single family housing, we can ensure more Ontarians are able to afford to buy homes.

Increasing the reliability and scale of our public transit infrastructure is another way we can support Ontarians to be their most productive. Strong public transit increases the size of an individual’s labour market while reducing the amount of time and money spent idling on our congested roads.

Additionally, implementing sound cluster policy also stands to protect Ontarians from future economic downturns. Research on clusters from Mercedes Delgado, senior lecturer at the MIT Sloan School of Management, shows that not only do they increase economic output but also mitigate shocks in economically depressed regions.

Ontario has many economic strengths, including a large population of working age, but in order to capitalize on our talent, we must take action now to ensure our firms are their most productive by supporting hard working Ontarians.