Ontario’s economy is currently navigating a challenging period, despite receiving the largest provincial fiscal support package in Canada, totaling about 1.5% of its GDP for the 2025 budget. With the economic environment cooling, it’s becoming increasingly likely that businesses will need to access some of this funding.
Softening Job Market
Ontario’s job market has weakened considerably since February, shedding nearly 60,000 jobs and pushing the unemployment rate to 7.9% in May. This marks the highest unemployment rate seen in the province since the pandemic years. While Ontario’s GDP likely saw a solid first quarter, partly due to companies accelerating orders to get ahead of anticipated tariffs, this temporary boost appears to be fading.
Over half of the recent job losses have occurred in the manufacturing sector, which remains highly vulnerable to U.S. tariffs on steel and finished automobiles. Although there was a surge in manufacturing sales in the first quarter due to companies “front-running” tariffs, the future path looks much less clear. This is evidenced by a sharp 10% month-over-month decline in international exports in April. Furthermore, auto production forecasts for 2025 now project a significant decrease, a stark contrast to the small gain anticipated just a few months ago in March.
Beyond the direct impact of tariffs, it’s the ongoing uncertainty surrounding trade relations with the U.S. that has prompted firms to scale back their payrolls. This softening job market, combined with a rapidly cooling population growth, is a key reason why experts anticipate household spending in Ontario to underperform moving forward. Notably, inflation-adjusted retail spending remained flat quarter-over-quarter at the start of the year.
Weak Housing Market
Along with British Columbia, Ontario’s housing market remains among the weakest in Canada. Sales per worker are still about 30% below their pre-pandemic levels, indicating a significant slowdown. With supply heavily outweighing demand, creating a strong buyer’s market, experts predict that home prices will continue to decline on average through the latter half of this year.
Non-Residential Construction: A Beacon of Growth
Despite these headwinds, Ontario’s non-residential construction sector is expected to be a significant contributor to economic growth this year. The sector has started strong, with real non-residential building investment up 13% year-over-year so far. The provincial budget further boosted this outlook by adding an estimated $3 billion to capital spending for this fiscal year, exceeding the projections from the fall economic update.
Looking ahead, non-residential spending will receive a sustained lift from major projects like the construction of four new small modular reactors at the Darlington nuclear generating station. Additionally, there’s potential for even greater investment, as the federal government has prioritized pushing forward with various nation-building projects across the country.