Friday, May 1, 2015

Ontario 2015-2016 Budget Predicts 2015 GDP Growth of 2.7%, Will We Reach It?

I just wanted to highlight the Ontario Finance ministry's prediction for Ontario's GDP growth for 2015 contained in the 2015-2016 budget PDF, on page 233. For 2015 the prediction is 2.7% (annualized) followed by 2.2% for 2016, 2017 and 2018.

Considering that the first estimate of US GDP growth just came out this week at a very weak 0.2% and the fact that Ontario and US GDP growth are quite correlated, and that the Atlanta Fed GDPNow model for US GDP growth is predicting US growth of only 0.8% in the second quarter of 2015 as of May 1st, I'm going to go out on a very thick limb and predict that Ontario won't reach GDP growth of 2.7% in 2015. The Atlanta Fed GDPNow model was dead on for its prediction of first quarter growth so I'm inclined to go with their prediction.

If Ontario also has GDP growth of 0.2% in the first quarter, growth would have to average 3.5% in the other three quarters which seems unlikely. Incredibly, there's a RBC prediction of Ontario GDP growth of 3.3% made in March, which now seems incredibly unlikely.

If the AtlantaFed model is correct for US second quarter GDP growth at 0.8% and Ontario's is similar, that would require third and fourth quarter growth of an average of 4.9% which again seems unlikely. So be prepared for revisions for the Ontario's GDP growth in 2015 and following that, less than predicted revenues to the Ontario government. On page 265 of the budget PDF, Ontario is predicting revenue of $124.4 billion in 2015-2016.

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