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TORONTO, ONTARIO--(Marketwire - Oct. 9, 2012) - The auto sector continues to provide support to the Ontario economy, according to the Provincial Monitor report released today by BMO Economics. However, with fiscal restraint, the strong loonie, sluggish U.S. demand and a housing market losing momentum, growth is expected to remain subdued. Real GDP is expected to grow 2.0 per cent in 2012, before ending up at 1.8 per cent in 2013.

"Auto producers continue to invest in North America and, despite a strong currency and higher labour costs compared to the southern U.S. and Mexico, Ontario is no exception," said Robert Kavcic, Economist, BMO Capital Markets. "Toyota, for example, is expanding production at its Woodstock assembly plant - a project worth about $100 million and 400 jobs. Plus, the CAW and Big Three automakers recently reached new 4-year contract agreements. Output in the auto sector was up a solid 20 per cent year-over-year through August."

Mr. Kavcic did note, however, that Ontario's manufacturing base is still challenged by the strong loonie and relatively high labour costs. "This year's move by Caterpillar to shift its Electro-Motive plant to Indiana, a state that recently adopted right-to-work legislation, is indicative of this challenge."

"While interest rates, the loonie and the U.S. economy remain top issues for Ontario businesses, our commercial customers continue to show optimism about their business prospects," said Susan Brown, Senior Vice President, BMO Bank of Montreal. "The availability of credit and attractive investment opportunities contribute to this optimism, despite the potential challenges. When we look at small businesses across the province, our recent BMO Small Business Confidence Report shows that 7 in 10 entrepreneurs are confident and the majority expects their business to grow next year."

Housing continues to cool in the province. "The stricter mortgage rules introduced July 9th appear to be having an impact on sales activity," said Mr. Kavcic. "Existing home sales slid nearly 15 per cent between April and August, dampening the pace of price growth. Still, construction activity is robust, especially in the Toronto condo market. But, with a wave of units currently under construction - nearly 30,000 - expected to be completed in 2013, there could be more resale supply butting up against the softer demand backdrop. As such, expectations are for a cooling in homebuilding activity next year."

Job growth was a sluggish 0.7 per cent year-over-year in September, with year-over-year declines in construction and public administration. Construction employment has fallen off sharply in recent months before rebounding in September, a trend that bears watching. The jobless rate edged up to 7.9 per cent in September, from a recent low of 7.4 per cent.

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

About BMO Financial Group

Established in 1817 as Bank of Montreal, BMO Financial Group is a highly diversified North American financial services organization. With total assets of $542 billion as at July 31, 2012, and more than 46,000 employees, BMO Financial Group provides a broad range of retail banking, wealth management and investment banking products and solutions.