2015 Ontario First Quarter GDP Growth -0.2% Annualized

The Ontario government has published their first quarter GDP number in the quarterly economic accounts and the news isn't good. The economy declined by 0.1% or 0.2% on an annualized basis. That's the first negative quarter of GDP growth since the second quarter of 2011. Exports declined 2.0% which isn't good news (for GDP especially) and somewhat surprising considering the low dollar although the US also declined by 0.2% annualized in the first quarter and since most Ontario exports go to the US that probably explains some of the export decline. Imports were only off 0.2%. Curiously I haven't seen this first quarter decline reported anywhere else, but I may have missed it.

In other bad news in the report, "Capital spending on machinery and equipment declined 1.2%." That's not good for future GDP growth. Also inventories increased by $8.1 billion in the quarter after increasing by $5.8 billion in the fourth quarter. That also isn't good for future GDP growth as eventually they will need to be drawn down.

I already mentioned that the US GDP declined 0.2% in the first quarter, while Canada as whole decline 0.6% on an annualized basis. So for Ontario, performance was obviously better than for Canada as a whole, but still negative. Canada's GDP number for the second quarter should be coming out in the next few days. April's number was slightly negative, so the Canada number for a whole shouldn't be very high and one would expect Ontario's wouldn't be either (although Ontario has had decent jobs growth for May and June). The US Atlanta Fed model prediction for second quarter GDP was a much healthier 2.4% on July 27, so maybe that will help out Ontario's second quarter number.

The current budget document predicted GDP growth for 2015 for Ontario of 2.7%. With this slightly negative number in the first quarter and possibly a weak number in the second, it will be difficult to hit that. Some Canadian banks had predictions of over 3% growth in 2015 Ontario, but that clearly won't happen, as that would require growth of at least 4.5% in the last three quarters. Lower GDP growth will probably also affect government tax revenues, which could lead to a wider than anticipated deficit in 2015-2016 fiscal year.