Ontario’s economy—slow growth and weak business investment

Over the first two decades of the 21st century, Ontario has been mired in a prolonged period of slow economic growth. Warning signs began flashing throughout the 2010s as the province’s manufacturing centre shrank. Things got much worse during the 2008/09 recession, which hit Ontario especially hard, and then in subsequent years the province limped through a recovery that was weak compared to the severity of the previous recession.

As a result, Ontario experienced very little inflation-adjusted economic growth from 2000-2019. Real per-person economic growth over the entire period was just 9.1 per cent in Ontario compared to 26.1 per cent in the rest of the country.

Private-sector job growth was predictably weak and provincial finances suffered as the province’s economy struggled. In fact, from 2000 to 2019, Ontario’s government added more debt per person to its balance sheet than any other province.

In short, the first two decades of the 21st century have been almost entirely lost when it comes to inflation-adjusted economic growth per person. Worryingly, there are additional economic data that give cause for concern about the province’s likely growth performance in years to come.

Specifically, a recent study shows that Ontario has struggled to attract business investment that can help propel future growth. Inflation-adjusted investment in machinery and equipment, which can help boost worker productivity, fell substantially in Ontario from 2000 to 2019.

More broadly, Ontario saw almost negligible inflation-adjusted per-person overall business investment from 2000 to 2019—average annual real per-person business investment in Ontario grew was just 0.3 per cent during this time period.

The chart above shows that Ontario was near the bottom of the Canadian pack in business investment growth. In fact, Ontario’s rate of growth was the third-lowest in Canada ahead of only New Brunswick and Nova Scotia, which have historically struggled to attract large scale business investment.

Business investment is a major driver of long-term economic growth and prosperity. It can help create jobs and make workers more productive, which in turn exerts upward pressure on wages. The province’s failure to attract business investment over the past two decades therefore has worrying implications for the province’s future growth prospects.

Ontario has gone through more than its share of economic pain over the past two decades. The province’s growth has been slow, private-sector job creation has been weak and government debt accumulation has been rapid. What’s more, the evidence shows the province has struggled to attract business investment over the past two decades. Unfortunately, after two decades of economic underperformance, this is a negative indicator for the province’s growth prospects in years to come.