First Quarter of 2020

(January, February, March)

Ontario Ministry of Finance

Table of Contents

ECONOMIC ACCOUNTS

RECENT ECONOMIC DEVELOPMENTS

Economic Accounts Highlights Ontario’s Real GDP Down in Q1

Larger version of image

Accessible version of image Ontario’s real gross domestic product ( GDP ) declined 2.0% in the first quarter (January, February, March) of 2020, largely reflecting the impact of the COVID-19 pandemic during the last two weeks of the quarter. Nominal GDP decreased 1.5%, as compensation of employees declined 0.7% and the net operating surplus of corporations contracted by 4.9%.

decreased 1.5%, as compensation of employees declined 0.7% and the net operating surplus of corporations contracted by 4.9%. Economic production measured on an industry basis decreased 1.9%. Service sector output declined by 2.1%, while output in goods-producing industries decreased 1.2%.

Expenditure Details Real GDP Contracts

Larger version of image

Accessible version of image

Larger version of image

Accessible version of image

Larger version of image

Accessible version of image Ontario’s real GDP decreased by 2.0% in the first quarter of 2020, after edging up 0.1% in the fourth quarter of 2019. This was the first quarterly decline since the second quarter of 2011. Household consumption spending was down 2.0%, the steepest decline since the first quarter of 1991. Consumer spending on durables declined 6.2%, led by a sharp drop in motor vehicle purchases. Spending on semi-durable goods (−9.0%) and services (−2.6%) also decreased with clothing stores, restaurants and travel services all impacted. Spending on non-durable goods rose 4.1% as consumer stockpiling, especially of food items, was prevalent. Total business investment edged down 0.2% in the first quarter, driven by machinery and equipment (−2.5%). This was partially offset by higher investment in residential construction (+0.1%), non-residential structures (+1.6%) and intellectual property products (+0.2%). Spending at all three levels of government combined declined by 0.7%, following a 0.3% rise in the previous quarter. Exports (−3.1%) and imports (−2.3%) both declined in the first quarter largely reflecting rail blockades, plant shutdowns and lower demand as a result of COVID-19. Supply chain disruptions resulted in businesses drawing down $1.5 billion worth of non-farm inventories, following a $4.2 billion accumulation in the fourth quarter.

Industry Details GDP Growth by Industry

Larger version of image

Accessible version of image

Larger version of image

Accessible version of image

Larger version of image

Accessible version of image Ontario real GDP , measured as value-added by industry, declined 1.9% in the first quarter of 2020, following an increase of 0.2% in the previous quarter. The decline was led by lower output in service-producing industries (−2.1%), while output in goods production (−1.2%) also decreased in the quarter. Manufacturing output decreased 2.3% in the first quarter. This was led by lower output in transportation equipment (−12.2%), in part reflecting temporary shutdowns at some assembly plants due to COVID-19 lockdowns and rail disruptions early in the year. Declines were also recorded in plastic and rubber products (−7.8%), machinery (−4.9%) and textile, clothing and leather (−18.5%) manufacturing due to temporary plant shutdowns and global supply chain disruptions. Construction output was 0.4% higher, as both non-residential structures and engineering (+0.6%) and residential construction (+0.1%) output rose in the quarter. Primary industry output decreased 1.4%, with agriculture and forestry (−2.1%) and mining (−0.5%) output declining. Utilities output edged up 0.1%, as an increase in electric power (+0.9%) was partially offset by a decline in natural gas, water and other utilities (−2.4%). Lower output in service-producing industries was driven by educational services (−6.9%), professional and administrative services (−2.7%) and accommodation and food services (−12.4%).

Recent Economic Developments

Global Economic Developments COVID-19 Impacts Global Economy

Larger version of image

Accessible version of image

Larger version of image

Accessible version of image

Larger version of image

Accessible version of image The COVID-19 pandemic triggered significant economic downturns across the world as people sheltered at home and businesses laid off workers. Real GDP in the euro area declined 3.6% in the first quarter of 2020, following 0.1% growth in the previous quarter. As countries implemented strict lockdown measures late in the quarter to contain the pandemic, real GDP in Italy and France both contracted 5.3%, while Spain’s GDP declined 5.2%. Germany’s GDP contracted 2.2% after a 0.1% decline in the fourth quarter. Real GDP in the United Kingdom declined by 2.0%. Japan’s real GDP declined 0.6% in the first quarter following a 1.9% decline in the previous quarter. This represents Japan’s first recession since 2015. China’s real GDP declined 9.8% as strict lockdown measures were imposed for much of the first quarter. The U.S. economy contracted 1.3% in the first quarter of 2020, following a 0.5% gain in the previous quarter. The decline reflected the response to the spread of COVID-19 as many state governments issued stay-at-home orders in March. Lower personal consumption expenditure (−1.8%), non-residential investment (−1.6%) and exports (−2.3%) contributed to the decline. The overall decrease was partially offset by a third consecutive quarterly rise in residential investment, which increased 4.3%, and by government spending, which increased 0.3%. Imports declined 4.2%, helping to support GDP growth. U.S. employment declined by a combined 22.2 million in March and April. Employment rose by 2.7 million in May followed by another 4.8 million increase in June. The unemployment rate declined by 3.6 percentage points from its peak in April to 11.1% in June, reflecting a gradual resumption of economic activity. However, the unemployment rate remains 7.6 percentage points higher and the employment level 14.7 million lower compared to February 2020.

Markets Beginning To Recover

Larger version of image

Accessible version of image

Larger version of image

Accessible version of image

Larger version of image

Accessible version of image Economies have begun to gradually resume activity following pandemic-related lockdowns, but uncertainty remains heightened. Demand for oil declined sharply in March and April as travel restrictions took hold while the supply of oil remained elevated, leading to an acute shortage of storage space and briefly sending oil prices into negative territory for the first time. The West Texas Intermediate oil price declined to −US$37 per barrel in late April before recovering to around US$38 per barrel by early June as the Organization of the Petroleum Exporting Countries and other major oil producers agreed to cut production. The Canadian dollar regained some strength, trading slightly above 73 cents U.S. in mid-June after weakening to below 70 cents U.S. in March. Major stock indices declined sharply in the first quarter, with the U.S. S&P 500 (−34%) and Canada’s S&P / TSX Composite (−37%) down in March from their respective February peak. Both indices have since recovered from their March lows but remain below their pre-pandemic highs in level terms. Uncertainty has kept demand for safer assets high and, as a result, yields for long-term government bonds low. The Canadian 10-year government bond yield hovered around 0.5% in mid-June, after averaging 1.2% in the first quarter. Major central banks have maintained interest rate cuts and brought in liquidity measures to support their economies. The U.S. Federal Reserve maintained the target range for its federal funds rate at 0 to 0.25% in June and committed to using its full range of tools to support the U.S. economy. The Bank of England maintained its bank rate at 0.1% in May, and the European Central Bank kept its key policy rate at −0.5% in June. The Bank of Canada also maintained its key policy interest rate at 0.25% in June.

In Focus Teleworking Trends During COVID-19

Larger version of image

Accessible version of image

Larger version of image

Accessible version of image

Larger version of image

Accessible version of image Governments across Canada have introduced a series of physical distancing measures to limit the spread of COVID-19, including orders closing or restricting businesses. This has resulted in a large number of Canadians teleworking or working remotely, many for the first time. Since the start of the COVID-19 pandemic, the share of Ontario’s employers with 80% or more of their workforce teleworking or working remotely nearly quadrupled, increasing to 31.7% on March 31, 2020 from 8.2% prior to February 1, 20201. Ontario outpaced other Canadian provinces and had the highest share of employers with at least 50% of their workforce teleworking or working remotely. Ontario’s share increased from 12.1% prior to February 1, 2020 to 38.3% on March 31, 2020 and remained above the national average. In Canada, information and cultural industries (84.6%) had the greatest share of employers with at least half of their workforce teleworking or working remotely on March 31, 2020, while accommodation and food services had the lowest share (8.3%). The top five industries with the highest share of employers with at least half of their workforce teleworking or working remotely made up 24.2% of total employment, while the bottom five industries with the smallest share made up 36.1% of total employment. These findings suggest that most workers in the top five industries with the greatest share of workers teleworking have jobs that allow them to perform their work from home, which is typically linked with higher levels of education2. Meanwhile jobs with the lowest shares usually require face-to-face interactions or on location presence and have limited telework capacity. [1] The data presented in this In Focus is based on the Canadian Survey on Business Conditions, which includes responses from more than 12,600 businesses that took part in an online questionnaire on Statistics Canada’s website about how COVID-19 is affecting their businesses. Businesses were not randomly selected and as a result, the findings cannot be applied to the overall Canadian economy. [2] Statistics Canada (2020). Canadian Perspectives Survey Series 1: COVID-19 and working from home, 2020.

Appendix The Fiscal Sustainability, Transparency and Accountability Act , 2019 states that the quarterly Ontario Economic Accounts should be released within 45 days of the Statistics Canada release of the National Income and Expenditure Accounts. In compliance with the legislation, the OEA will be released according to the following schedule: Reference Period Expected Statistics Canada release of National Income and Expenditure Accounts Corresponding deadline for the release of Ontario Economic Accounts Second Quarter

(April-June) 2020 August 28, 2020 By October 13, 2020 Third Quarter

(July-September) 2020 December 1, 2020 By January 15, 2021 Fourth Quarter

(October-December) 2020 March 2, 2021 By April 16, 2021 Structure of the Ontario Economy

Note: Numbers may not add due to rounding.

Source: Statistics Canada

Larger version of image

Accessible version of image Note: Numbers may not add due to rounding.Source: Statistics Canada How GDP is Measured The Ontario Economic Accounts provide measurements of GDP using three different methodologies, by expenditure, income and industry. The GDP by expenditure approach defines GDP as the aggregate of all expenditures on final consumption, gross capital formation and net trade by consumers, governments and businesses that occur within Ontario’s economy over a given time period. This measurement of GDP can also be defined as the sum of consumer spending, gross investment, government spending and net trade. The GDP by income approach equates GDP to the total income earned through contributions to production within Ontario’s economy by labour and capital over a given time period. That is, GDP is the sum of all wages and salaries paid to employees, the gross operating surplus of businesses, gross mixed income and indirect taxes less subsidies. The GDP by industry approach measures GDP by calculating the total output of the goods and services producing industries within Ontario’s economy and subtracting the cost of intermediate inputs used in final production. This approach can also be referred to as the value-added approach as it quantifies the additional value generated by industries through the production of final products within the economy.

Larger version of image

Accessible version of image

For a full list of definitions used in the Ontario Economic Accounts, please see Statistics Canada’s System of Macroeconomic Accounts Glossary at https://www150.statcan.gc.ca/n1/pub/13-605-x/gloss/gloss-a-eng.htm.