Sector outlook: Ontario on the rise

Sectors in-the-know investors will definitely want to keep an eye on

There's no doubt the once powerful Ontario economic engine is sputtering. Its mighty manufacturing sector is running on fumes, hurt by a high dollar, energy costs and weak U.S. consumer spending. The provincial unemployment rate is above the national average–an extremely rare occurrence–and Premier Dalton McGuinty is practically begging in the street for loose federal change.

But it's not as if the economy has completely tanked. So why the down faces? It's partly because of the runaway success of Alberta. Certainly, Ontario hasn't enjoyed the huge surge in resource royalties that many others have experienced, but there is still reason for optimism. The dollar is pulling back, energy prices are retreating and consumers are still spending. “The domestic economy–consumer demand, investment and government spending–is doing quite well,” says Marie-Christine Bernard, associate director, provincial outlook, Conference Board of Canada. “The weakness is coming from the trade side.”

That trade weakness isn't likely to change in the first part of 2007, but Derek Burleton, senior economist at TD Bank Financial Group, predicts there will be a bit of a pop late next year as the U.S. economy picks up. In the meantime, there's little risk of the province falling into a recession. “Ontario is underperforming, but it is growing,” says Burleton.

TD believes Ontario's real GDP will grow about 2% in 2007, nearly a full percentage below what Burleton calls “longer-term cruising speed,” but the gap between the province and Alberta should close. That alone will make Ontarians feel a little bit better about their prospects.