Ontario’s economy will grow at the slowest pace among Canadian provinces in 2026, with trade tensions with the United States continuing to play a key role in the province’s muted performance, according to a new forecast by an economic think tank.
Ontario’s real gross domestic product growth is expected to be 0.7 per cent in 2026, “in part due to a troubled EV sector and the province’s exposure to U.S. automotive and steel tariffs,” Signal49, formerly the Conference Board of Canada, said in its latest outlook.“There are a couple of different pieces to that story, but, broadly speaking, it certainly is generated by U.S. trade policy that’s really weighing down growth this year,” Christopher Heschl, principal economist at Signal49, said.
Article content
He said the pressures of the ongoing trade war will continue to be felt more heavily in communities where manufacturing represents a larger share of the economy, such as southwestern Ontario, the heart of Canada’s automotive manufacturing industry and a region where unemployment has been edging higher for the better part of the year.
Article content
For example, the London area recorded the country’s second-highest unemployment rate in May, tied with Kitchener-Waterloo and Barrie at 8.7 per cent, while Oshawa was at 8.5 per cent and Windsor at 8.2 per cent, according to Statistics Canada’s latest labour market data. All were well above the national unemployment rate average of 6.6 per cent.
Though Ontario’s manufacturing sector has shown its resiliency and has managed to keep its head above water, with massive layoffs still rare, “manufacturers are under real pressure,” said Alan Arcand, chief economist at Canadian Manufacturers and Exporters (CME).
Article content
“One of the biggest challenges is the uncertainty,” he said. “Manufacturers are responding in rational ways by delaying investment plans and reducing production rates . . . (but) investment dollars that aren’t being spent today is future production loss tomorrow.”
Article content
Signal49 said the economic outlook could improve quickly in 2027, but that largely depends on a speedy resolution to the Canada-U.S.-Mexico Agreement (CUSMA) negotiations.
Article content
“If tariffs persist or if negotiations deteriorate, we would expect to see a worse outlook over the near term, as businesses choose not to invest and perhaps even cancel current plans,” Heschl said.
Article content
He pointed to Honda Canada Inc.’s decision in April to indefinitely suspend its planned $15-billion investment in an electric vehicle and battery manufacturing complex in Alliston as an example of the toll trade tensions are taking on investment in Canada.
The free-trade agreement among the three North American countries is up for review this year, with a deadline of July 1 for all three nations to decide whether to renew the agreement and extend it for an additional six years to 2042.
Article content
U.S. President Donald Trump told reporters at the White House on Wednesday that he is not looking to renew the agreement. If CUSMA is not renewed, it will remain in place until 2036 with annual reviews.
Article content
Arcand said renewal of the agreement and the removal of sector-specific tariffs would be “the best-case scenario” for Ontario’s manufacturing sector.
Article content
A quick resolution would jump-start Ontario’s economy “pretty quickly,” he said, though the damage already done would take time to repair.
Article content
“You would see a pickup in investment and a pickup in activity, but there’s definitely some scarring that’s going to take some time to heal,” he said.
Article content
Signal49 said Ontario’s economy is also likely to be affected this year by the war in the Middle East, which has pushed gas prices higher, affecting consumer confidence and spending power at a time of slow population growth.
Article content
On the flip side, higher gas prices will benefit the finances of resource-producing provinces, including Alberta and Newfoundland and Labrador, whose economies are expected to grow by 1.4 per cent and 2.4 per cent, respectively.
Article content
With files from The Financial Post
Leave a Reply
You must be logged in to post a comment.