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TORONTO, ONTARIO--(Marketwire - Dec. 7, 2011) - The Ontario economy has picked up in the latter half of this year, mitigating the negative impact of temporary auto sector disruptions, according to the Provincial Monitor report issued today by BMO Economics. Growth should pickup sharply in the third quarter, and leave real GDP on pace for 2.1 per cent growth this year.

"Ontario's housing market remains firm - thanks to extremely low interest rates - and condo construction continues at a robust pace," said Robert Kavcic, Economist, BMO Capital Markets. "We expect to see housing starts of 68,000 units for 2011, and 64,000 next year."

Looking ahead, the longer-term headwinds of sluggish U.S. demand and fiscal restraint will continue to impact Ontario's economy through next year; growth should downshift to a more modest 1.9 per cent pace.

"Ontario businesses have shown remarkable resiliency in the face of strong global economic headwinds, particularly with a slowdown in the auto and auto parts sectors earlier this year and continuing weakness in U.S export markets," said Susan Brown, Senior Vice-President, BMO Bank of Montreal. "In the current environment, businesses continue to look for opportunities to invest in and enhance productivity, and to diversify supply chains and markets for their products and services."

Canadian auto production fell sharply in the spring, negatively impacted by supply-chain issues stemming from the Japanese earthquake/tsunami. Production has since started to recover, but another natural disaster (flooding in Thailand) will cause another modest hiccup - Honda's Alliston plant was running as much as 50 per cent below full capacity in November, before ultimately returning to normal production by the end of the month.

Before weakening in recent months, the labour market had recovered all of the jobs lost during the recession. But employment growth has stalled since mid-year with nearly 35,000 jobs lost since June-all in the private sector, with particular weakness in finance and manufacturing.

After expanding as much as 6.5 per cent year-over-year during the recession, real government spending slowed to a 1.5 per cent year-over-year pace in the second quarter. "The restraint required to balance the budget will further restrict public-sector growth," noted Mr. Kavcic. "Indeed, the Province is targeting program spending growth of 1.4 per cent per year through fiscal 2017-2018, with the possibly of a more aggressive 1 per cent-per year target. Either way, it will be a stark change from the near 8 per cent annual growth over the past decade."

The full Provincial Monitor can be downloaded at www.bmocm.com/economics.