Ontario’s sluggish economy stifling living standards in the province

According to the Ontario Chamber of Commerce, less than one in seven businesses feel confident in the province’s economic outlook—a record low. It’s not surprising Ontarians are pessimistic; the provincial economy has been falling behind the rest of Canada for the last two decades.

This is a reversal of fortune. Historically, Ontario has been an economic leader among the provinces. In the decades following the Second World War, Ontario’s household income maintained a 10 to 20 per cent lead over the national average, and the province’s unemployment rate was always below the national average. This was maintained despite periodic recessions due to the province’s heavy reliance on the manufacturing sector. Yet the province’s fortunes began to change around the turn of the century, and for the last two decades Ontario’s economy has been sluggish and losing ground to the other provinces.

For example, in 2002 Ontario’s inflation-adjusted GDP per person—a common measure of living standards—was $53,524 and third-highest among all 10 provinces (behind only Alberta and Saskatchewan). In other words, Ontarians enjoyed some of the highest living standards in Canada. Two decades later in 2022 (the latest year of available data), though Ontario’s inflation-adjusted GDP per person had grown to $60,042, the province had fallen to fifth-highest among the provinces (behind Alberta, Saskatchewan, Newfoundland and Labrador, and British Columbia).

Why did this happen?

A recent study showed that from 2002 to 2022 (the latest year of available data), Ontario had the second-lowest average annual growth rate of inflation-adjusted GDP per person at 0.7 per cent. Consequently, living standards in Ontario grew slower over the last two decades than in any other province except Alberta.

At the same time, Ontario experienced lackluster business investment. From 2002 to 2022, Ontario’s average business investment per worker was $11,899, which was only sixth-highest among the provinces and approximately one-third of the investment levels in provinces Alberta, Newfoundland and Labrador, and Saskatchewan. And while these three provinces are all oil-intensive and experienced multiple investment booms during this time, average business investment per worker in Ontario was still nearly $3,000 less than in B.C. and Manitoba.

This is a huge problem for Ontario. Business investment drives economic growth because it equips workers with the tools and technology necessary to produce more and provide higher quality goods and services. In other words, business investment helps workers become more productive, which translates into to higher incomes and a stronger economy.

Over the last two decades, Ontario has experienced sluggish economic performance and lost its status as an economic leader in Canada. Given the province has lagged behind the rest of the country on key measures of economic growth, it’s no wonder Ontarians are pessimistic about the state of their provincial economy.