Ontario could avoid recession this year, even as Trump’s tariffs take hold: fiscal watchdog

Ontario’s fiscal watchdog says the province could avoid a recession this year, but the findings of his latest report show the trade war with the U.S. is taking a bite out of Ontario’s economy.

The data is part of the latest update from the province’s Financial Accountability Office (FAO). It highlights Ontario’s economic struggles between April and September in the months immediately after U.S. President Donald Trump’s tariff policies were imposed.

It also delves deeper into the province’s shrinking manufacturing sector, which the FAO says has shed approximately 20,600 jobs over the past two years and has been put under increased pressure because of the trade war.

“I think the point of the report is, we’re in a period of weak economic growth for all the obvious reasons,” Ontario financial accountability officer Jeffrey Novak said. 

Ontario’s real gross domestic product (GDP) growth, a wide measure of economic activity, decreased by 0.6 per cent during the second quarter of the year due to a “significant drop” in exports and “sharply lower” business investment, the report notes. 

Ontario could avoid ‘technical recession’: FAO

The report contains projections for the third quarter which suggest Ontario may avoid a “technical recession,” defined as two consecutive quarters of real GDP declines. 

While the report notes the overall economy is little changed, lower than anticipated job losses and gains in retail sales and manufacturing sales could help the numbers.

But Novak said his office will be watching the data closely as it comes in. The economic uncertainty being felt by many employers is still translating to job losses, he said.

“For Ontarians, depending on where you are situated in the job market, the job market is weak,” Novak said.

Ontario’s unemployment rate sat at 7.8 per cent between April and September after steadily increasing since early 2023 for nine consecutive financial quarters. The province lost approximately 1,900 jobs in the third quarter of this year, after a “significant 38,000 drop” the the second quarter.

The report notes youth unemployment in Ontario rose to 16.8 per cent, the highest rate since 2012, excluding the pandemic.

The report also digs into manufacturing jobs losses saying that supply chain disruptions, pandemic-related shutdowns, shipping issues and auto plant retoolings have compounded employer challenges. The total share of manufacturing jobs in Ontario’s employment picture has fallen below 10 per cent for the first time since 1976, the FAO notes.

Finance minister dismisses report as ‘old news’

The number of people unemployed in the province for a “long-term” period of more than six months now accounts for more than 28 per cent of those without a job in Ontario.

“That’s the highest number we have seen since the 1990s,” Novak said. “That’s just an indication of the difficulties folks are having in the job market right now. You’d like to see a lower number for long-term unemployed.”

Finance Minister Peter Bethlenfalvy dismissed the report as “old news” that dates back to earlier in the year. But he did note the report projects Ontario’s economy will grow at a higher rate than the province’s own fiscal estimates.

The FAO projects Ontario’s real GDP growth will slow to 0.9 per cent for 2025. Ontario’s fall economic statement projected that growth at 0.8 per cent earlier this month.

“We’re doing everything we can to support and protect Ontario families, businesses and workers,” Bethlenfalvy said at a news conference Wednesday, responding to the questions about the report.

NDP Leader Marit Stiles slammed the government’s record on jobs, pointing to the FAO report as evidence the Tories aren’t doing enough to address the impact of tariffs.

And while the province may not slip into a technical recession, that is “cold comfort” for people struggling to find work, she said.

Fiscal projection a ‘punch in the gut,’ opposition says

“I think the reality is, people are having trouble making rent, making mortgage payments. More and more people are having a hard time finding good jobs,” Stiles said. 

Liberal parliamentary leader John Fraser said the FAO data further underscores that Ontario’s economy is in trouble. He questioned whether the Ford government’s tariff response measures are working.

“I don’t think they have a real plan,” Fraser said. 

Green Party Leader Mike Schreiner called the data a “punch in the gut” to workers and their families. The province could create jobs by investing in electric vehicle manufacturing and “made-in-Ontario” renewable energy, he said.

“If you’re going to have an industrial strategy, you need to bring a full plan to the table that actually works,” he said. “And the Ford government failed to do that.”