• Ontario's economy to grow at a blistering 5-per-cent pace in 2000
• Automotive sector losing steam, but province to benefit from ongoing strength in "new economy" industries
• Ottawa - an emerging powerhouse in information technology - to remain a bright spot
• Moderation in growth to a more sustainable annual rate of 3 per cent in store for Ontario in the 2001-02 period

TORONTO - Canada's provinces will enjoy stellar growth rates of 3 to 6 per cent in 2000, with "new economy" industries leading the expansion from coast to coast, say TD economists in their latest issue of the TD Quarterly Industrial and Provincial Forecast. "In Ontario, the automotive sector - traditionally a key driver of economic growth in the province - is taking a backseat to the "new economy" industries this year," says Derek Burleton, Senior Economist, TD Bank Financial Group. "Looking ahead to 2001-02, these industries, like their "old economy" counterparts, will feel the impact of an anticipated slowdown in U.S. demand, which in turn will cause economic growth to moderate to a slower pace of about 3 per cent per year in the 2001-02 period.

Growth in automotive production levelling off
After racing ahead at a thunderous clip last year, powered by a combination of robust U.S. demand, capacity expansions, and introductions of new models, growth in automotive production in Ontario has cooled off this year. With fewer expansions underway, and with U.S. demand for light vehicles appearing to have peaked in the current cycle, light-vehicle output is expected to grow only slowly in the 2000-02 period. "However, the longer-term prospects for the automotive production sector remain very bright, as evidenced by recent announcements of major new investments by automotive producers over the next few years," notes Burleton.

Ontario's major cities enjoying explosive growth
Virtually all of the net new jobs in Ontario this year are being created in the province's urban centres, where the "new economy" is gaining the biggest foothold. The province's major cities will continue to account for a disproportionate share of job creation over the next few years, with Ottawa and Toronto expected to remain particularly strong engines of economic growth. Although the overall pace of employment growth in Ontario as a whole will taper off somewhat by 2001 as the economy loses some steam, real disposable income per capita will remain on a healthy upward track over the next few years. The bright outlook for personal income growth suggests that consumers will remain in a spending mood.

"New economy" industries leading the way in Canada
The important role played by the high-technology sector in Ontario's expansion is only the latest evidence of an emerging theme in the Canadian economy this year - the growing shift in momentum from traditional sectors toward the "new economy" industries (NEIs). "We define the NEIs as goods and services industries that operate in the domain of telecommunications, fibre optics, and computers and software," notes Burleton. "Although their combined size is still small - at about 7 per cent of GDP and 5 per cent of total employment - these industries have accounted for nearly 25 per cent of economic growth and 15 per cent of overall job creation on average in the provincial economies since 1997." An expected slowdown in corporate profit growth will take some of the steam out of the NEIs over the next two years, but demand for information technology is likely to remain relatively strong, which should ensure that the NEIs maintain their recent share of overall output growth and job creation throughout the forecast period.

Sustained increase in energy prices would produce clear winners and losers
Another focal point of this quarter's forecast is the likely impact on economic growth of the surge in energy prices seen over the last twelve months. Assuming that crude oil prices move back towards the US$25-$28 per barrel range next year, the negative impact on real GDP growth in Canada's provinces should be minimal. "However, if crude oil and natural gas prices remain at or above today's high levels, provinces that are net importers of energy products - such as the provinces of central and eastern Canada - could see real GDP growth trimmed by as much as half a percentage point next year," warns Burleton.

In contrast, the high level of energy prices is providing a boost to the economic and fiscal positions of Alberta and, to a lesser extent, Saskatchewan. In Alberta, brightening prospects for growth, together with a surge in crude oil and natural gas royalty collections, prompted the government to lift its estimate of the fiscal 2000-01 surplus to a mammoth $5 billion and announce cuts to corporate income-tax rates, which match those promised by the government of Ontario in its May 2000 budget. "This will put increasing pressure on other provinces - which already have some work to do to narrow the gap in personal income-tax rates with Ontario and Alberta - to move corporate tax breaks further up the agenda for the 2001 budget round," says Burleton.

Real GDP: Real gross domestic product in 1992 dollars
Forecast by TD Economics as at October 2000
Source: Statistics Canada, TD Economics

For more information, please contact:

Derek Burleton
Senior Economist, Canadian Industries and Provinces
(416) 982-2514

Don Drummond
Senior Vice President and Chief Economist
(416) 982-2556