OG100 Quarterly Economic Commentary – with RBC

After enduring COVID-related restrictions over the last two years, Ontario’s economic position had a lot to make up for. Despite supply chain setbacks and strict lockdowns, the province’s economy grew for a third consecutive quarter in Q1 of this year to reach a 1.3% increase over its Q4 2019 real GDP level.

Although Ontario’s economy is projected to grow a solid 3.2% in 2022, the picture is split. The year started off strong with consumer spending and demand for labor reaching historical highs, however, rising interest rates have already started to cool markets down. The Bank of Canada pushing back after calls for pause following September’s rate hike suggests the final rate hike has yet to come. With Ontario households holding one of the highest debts to income ratios in the country, spending in the province is expected to slow further in the coming months.  

September 22 with a Builder Member Royal Bank of Canada

Author: Rachel Battaglia, Economist RBC Economics


Although Ontario’s economic growth has been robust since the end of the pandemic recession, the province’s recovery has been uneven among industries. Fueled, in part, by COVID-related government transfers and the rock bottom interest rates of 2021, Ontario boasted notable gains in household spending and business investment. Goods production and construction investment were among the industries which benefitted from the province’s spending frenzy earlier this year. Gains in these sectors, however, were partially offset by the province’s lagging manufacturing sector. Although demand has been robust throughout the first quarter of 2022, supply chain kinks and labor shortages have been a major challenge. This was especially the case for the province’s auto industry. Labour market challenges have also stunted the recovery of several other industries, including hospitality, as well as arts and recreation where activity is still significantly lower than pre-pandemic levels. GDP in the arts and entertainment industry, for instance, remained 31% below the level reported in the fourth quarter of 2019, and the food and accommodation industry GDP 18% below. Moving forward, slower economic activity is expected to improve supply bottlenecks and bring some relief to Ontario’s overburdened labor market.



Although conflict in Eastern Europe and China’s zero COVID policy continue to wreak havoc on international supply lines, the easing of pandemic-related restrictions in most of the world has substantially improved the movement of people and goods. In Ontario, we expect commodity prices to begin softening as supply chain disruptions continue to ease and consumers rotate spending towards services rather than goods. Just as the province’s economic recovery has been uneven, the looming economic downturn is projected to hit Ontario’s industries unequally. Data from our tracking of credit and debit card transactions has shown early signs of consumer spending beginning to taper off as higher interest rates force households to cut back on consumption. In fact, retail sales growth is expected to slip down to 3.1% in the province in 2023 following a record year for growth (13.9%) this year. Given higher-income households account for a greater percentage of discretionary spending, goods producing sectors tend to experience greater volatility during recessionary periods. Although the 2020 downturn was an exception to this trend, lingering pent-up demand for services is expected to cushion service producing industries in the province over the mild recessionary period ahead.

ottawa's immigration efforts expected to address labour crunch

Immigration ramps up to address labour shortages

Given more than 30% of Ontario’s labour force is comprised of immigrants, global mobility constraints as a result of COVID health measures have been especially strenuous on the province’s labour market. Dropping down to an unemployment rate of 5.3% in July of this year, Ontario’s unemployment rate has plummeted down to its pre-pandemic low after swinging to its peak of 13.2% in May 2020.

Although the province is on track to welcome substantially more newcomers than the previous three years, the influx of new permanent residents has yet to ease labour market tensions. Nonetheless, Ottawa’s immigration efforts, paired with slowing business activity, are bound to alleviate some pressure from the province’s constrained labour market by next year.


The sharp rise in interest rates since March has significantly cooled Ontario’s booming housing market. After surpassing the $1 million mark for the first time in February 2022, average home prices in the province are now softening – a trend that is likely to extend into the early months of 2023. With residential real estate values increasing nearly 50% in two years ending February 2022, the impending market downtum is expected to chip away at consumer purchasing power as the negative wealth effects sets in.

Coinciding with the Bank of Canada’s interest rate hikes, home resales are down 41% from the February peak and average prices down 15% as of July 2022. With the Bank of Canada committed to a firm tightening bias, Ontario’s housing market is expected to cool further in the near-term. Given real estate has been a major contributor to Ontario’s GDP this year, lower levels of real estate activity are likely to restrain real GDP growth in the province which is expected to fall from 3.2% this year to 0.3% in 2023.

Residential real estate peaked in ontario