NORTHERN ECONOMIST 2.0

Tuesday, 24 March 2026

Ontario’s 2026 Budget: Facing Economic Challenges

Ontario's Premier Ford seems to have grown more theatrical over time in his public pronouncements whether of the economic nature or otherwise. There is also a preoccupation with the announcement of large infrastructure initiatives with many targeted to the GTA area the latest of which is the move to extend the runways at Billy Bishop Airport to accommodate jets. This is all understandable given the buffeting that the Ontario economy has taken in the wake of the Trump Tariffs and the effect on Ontario exports and the auto sector in particular and the rising unhappiness and dissatisfaction of the Ontario public. And yet, despite diversionary theatrics and announcements, the challenges facing Ontario are not going away.

There are numerous challenges facing Ontario as Thursday’s budget approaches and they can be divided into short and long term. On the immediate front, Ontario has seen a decline in employment and a rise in unemployment rates because of the continuing fall out from the trade and tariff dispute with the United States. There is the continuing challenge of health care as families have difficulty accessing timely physician and hospital services. And of course there is the cost of housing which has not been helped by Ontario’s inability to boost housing starts which as one report has noted is an Ontario rather than Canadian problem per se. Then there are the public finances which in the short term have seen continued deficits and despite pledges that the budget will be balanced by 2027, is looking increasingly unlikely. Over the longer term, Ontario faces a productivity problem best illustrated by real per capita GDP which is essentially unchanged from 2018 and a net debt problem which the province’s Financial Accountability Office estimates will reach $548 billion by 2029-30.

The best way to summarize the economic challenges facing Ontario is through a few charts. Figure 1 starts off with a long-term view of Ontario’s real per capita GDP and the growth rates over time. The takeaway here is that over the long run, the growth rate of real per capita GDP has trended downwards. More serious from the Ontario Premier’s point of view, real per capita GDP in Ontario has essentially been stagnant since 2019. In that year, real per capita GDP ($2017) was $59,681 and in 2025 it was $60,052. If one factors out the pandemic drop and rebound of 2020 and 2021 – real per capita GDP in Ontario since 2018 has grown at 0.4 percent annually. It’s 0.3 percent annually if you factor in the two pandemic years. Ontario is essentially amidst a lost decade in terms of per person income growth – it just has not been labelled that yet given that Ontario is also amidst a lost decade when it comes to an effective political opposition.

The slowing of the Ontario economy has been especially noticeable in rising rates of unemployment and those rates while up across the province, have been quite noticeable in the GTA where half of Ontario’s population and employment resides. Figure 2 plots the monthly unemployment rate sin Ontario for the province and by economic region since 2016. Again, taking away the pandemic spike, they were on the decline until early 2023 and have since started to rise. In the GTA, the unemployment rate was just over 5 percent in early 2023 and rose to reach 9.5 percent by September of 2025. It has since subsided a bit but is still at 7.6 percent. That is the third highest rate of Ontario’s 11 economic regions as illustrated in Figure 3. Having many unhappy voters concentrated in such a large vote rich area is not good news.

The deteriorating employment situation is further illustrated in Figure 4 which plots the change in employment for Ontario and its 11 economic regions both over the course of the last 12 months – February 2025 to February 2026 and more recently since July 2025. While Ontario since February 2025 is only down 7400 jobs, if you look at where employment has gone from the summer peak, the drop has been about 150,000 jobs. The largest drops in absolute numbers have been Ottawa (-46,400), Toronto (-24,600), Kitchener-Waterloo-Barrie (-40,600) and Hamilton-Niagara (-37,300).

So, come Thursday, many Ontarians will be looking at what the government might do to alleviate the economic hardship that is afflicting Ontario. Will there be long run measures to boost productivity and the supply side of the economy that ultimately will raise incomes, and reduce unemployment and inflation, or will Ontario continue with short term measures that grab political attention or temporarily alleviate cost of living through demand side boosts that boost inflation further. Stay tuned.

Wednesday, 18 March 2026

When Will Highway 1 Through Northwestern Ontario Be Fixed?

It has been a grim start to 2026 on the roads and highways of Northwestern Ontario with 11 deaths recorded so far,aggravated in part by the harsh winter conditions we have experienced this year. This has once again prompted regional leaders to call for improvements to the 11 and 17 highway corridors with either more four-laning or a two plus one system (a three-lane highway configuration where the middle lane changes direction every two to five kilometres for passing). The bottleneck at the Nipigon bridge is especially problematic given that both highways converge at that point. Of course, the stretch between Nipigon and Shabaqua has gradually been widened to four lanes in spots, but the process has been underway for over twenty years, and substantial portions remain to be completed.

On top of that, the amount of traffic has increased substantially particularly with respect to transport trucks. The increase in traffic comes with demographic changes as older drivers have been retiring and it seems there is a plethora of new drivers with a lot less experience driving two lane highways. Traffic is only going to increase given that east-west traffic appears to have increased in the wake of American tariffs and to that can be added a future where nuclear waste shipments will be trucked to Ignace which is going to be the designated nuclear waste repository for all of Canada.

Of course, the call for highway improvements in the region has been as ubiquitous and lonely as the haunting calls of the loon. Annual meetings of NOMA and other regional gatherings invariably issue a call for highway improvements with the case for what is perceived by many in the region to be a piece of critical national infrastructure falling on deaf ears. And there have been opinion pieces and reports often in national venues making the case for an improved national highway system through northern Ontario but again they seem to have been only of limited impact. Even the Rosehart Report in 2008 noted that “For at least three decades, the residents of Northwestern Ontario have requested four-laning of the main highway from the Manitoba border to Southern Ontario (Highway 17)” which means that really this has been going on for half a century and yet here we are.

Northwestern Ontario is a vital zone of transit between the east and west of Canada and the case can certainly be made that as part of a resilient national economy and defense strategy, the highways through the region need to be improved. There is even a case for an extension of Highway 11 over the top of Lake Nipigon to provide as second east-west route independent of the bottleneck at Nipigon. However, the case for public safety is also an important one and for that one needs top look at the historical record of road and traffic fatalities in Ontario over time as well as a comparison of Northwestern Ontario with the rest of the province.

Figure 1 plots the number of persons injured and persons killed per 100,000 population for all of Ontario from 1931 to 2024 using data obtained from Ontario Road Safety Annual Reports – which incidentally are only preliminary after 2022 and do not offer as detailed a look as previous reports. Nevertheless, the chart shows that there used to be a time when Ontario was smaller in population and yet highway and road carnage was rather high.

Road deaths per 100,000 population were 17 per 100,000 in 1931 and trended upwards to peak in the early 1970s at 24 deaths per 100,000 population. They then trended downwards because of improvements in automobile safety as well as the passage of seat belt laws in 1976 and 2006. Despite the increase in Ontario population and higher urban and road use densities, by 2012, motor vehicle deaths per 100,00 population in Ontario bottomed out at about 4 per 100,000 and have remained stable since.

Compare now Northwestern Ontario statistics for Kenora, Rainy River and Thunder Bay districts over the last decade with Ontario. Figure 2 plots motor vehicle collision deaths per 100,000 population for Northwestern Ontario versus Ontario from 2015 to 2024. The average for the 2015 to 2024 period is 11.3 deaths per 100,000 for Northwestern Ontario versus 4 deaths per 100,000 for Ontario as a whole. Moreover, while the Ontario numbers have remained largely stable over the period, the ones in Northwestern Ontario exhibit a distinct upward trend when a linear fit is applied. In other words, things are getting worse.

The deaths in Northwestern Ontario over the 2015 to 2024 period have ranged from a low of 7.8 deaths per 100,000 population in 2016 to a high of 13.8 in 2021. As for 2026, if deaths continue at the current rate, there could well be 40 deaths this year or about 16 per 100,000 population. Going back in time for Ontario, the last time there were approximately 16 traffic collision deaths per 100,000 population in Ontario was 1981 – that was nearly half a century ago. Or if you like, Northwestern Ontario road and highway death rates in 2026 will be akin to Ontario in the 1930s.

So again, we again ask the question. When will Highway No. 1 through Northwestern Ontario be fixed? Will we have an answer before 2076?

Wednesday, 11 March 2026

Takeaways from the US-Iran Conflict

It has now been nearly two weeks since the Americans began bombing Iran to bring about its desired regime change. As this mid-East conflict continues and expands, the economic, trade and travel disruption continues and if prolonged threatens to slow economic growth substantially and restoke inflation. While all of this is serious in its own right, there are several takeaways that spring to mind because of what has transpired.

1. Despite the post-pandemic talk of building national resilience and hardening supply chains, the global economy is obviously still quite interdependent, and the crucial lubricant is oil. Indeed, despite the development of green energy alternatives, it would appear it that the world still runs on oil. As late as 2023, fossil fuels still comprised over 80 percent of the world’s energy mix and 20 percent of global oil consumption and the LNG trade goes through the now precarious Strait of Hormuz. The countries most dependent on this flow include Japan, India, South Korea and China. China is the most dependent on Middle East oil and imports about 40 percent of its oil through the strait. This leads one to speculate that the American intervention in Iran is seeking to hit two birds with one stone so to speak – taking out Iran while also sticking it to China. On the other hand, this assumes the United States went into this with a strategy. See next point.

2. The current American leadership can generate policy ideas but seldom seem to be capable of thinking things through before action. It appears it did not anticipate that after decapitating the Iranian leadership, they would continue fighting. Iran is not Venezuela and it is apparent that the thinking was to launch a quick strike to decapitate the regime through shock and awe and that it would naturally be followed by a rising up of the people and a new regime allowing President Trump to declare victory and depart. It has turned out to be more complicated than that. Indeed, no lessons were learned from the Ukraine which when initially invaded by Russia was expected to collapse quickly under the Russian onslaught, but it turns out they did not. In addition, the attack on Iran represents yet another direct attempt to take out a foreign leader by the United States and is setting precedents that no doubt might disturb other world leaders – foes and allies alike. One wonders if other countries may be inspired to deal with certain issues in this revamped American style. This would represent an important deterioration in international rules of etiquette with the next step up being knocking off international leaders at state dinners a la Medici or Borgia or perhaps even like the Black Dinner of 1440. While the principles of the post 1648 Westphalian System regarding exclusive territorial sovereignty have been in retreat for some time, going back to a more medieval approach does not seem like progress to me. In any event, while the United States in its history has tried to bring about regime changes around the world, the Americans need to reflect on where exactly they are going with this specific approach to international relations because the long run cycle of history suggests that what goes around eventually comes around.

3. Despite all the talk of the rise of China and the declines of the West and the United States, the United States, with its string of global bases and aircraft carrier groups, is still able to project its power around the world in a way that China and Russia are not capable of. While China has now acquired its third aircraft carrier and reports are that the number of ships the Chinese Navy has exceeds that of the U.S. Navy, the tonnage of the U.S. Navy is still substantially larger than China’s and it has more long-range vessels. Most of China’s ships are still short-range patrol and coastal vessels which may be useful if they wish to invade Taiwan but not so much so when it comes to dispatching task forces to the other side of the globe. The U.S. Navy has more destroyers and frigates and 11 aircraft carriers. Their action in the Persian Gulf is only using a fraction of the fleet. America still rules the waves.

4. Despite its written and living Constitution and several centuries of history, the Americans do not have a system of checks and balances after all. While there has been a long-term increase in the power of the American Presidency since World War II, under Donald Trump, the Imperial Presidency has reached new unabashed heights. In the case of trade, Trump’s tariffs were struck down by the Supreme Court, but the President has already said that he will find a new way to carry out his plan and bypass Congress. And, in the recent action against Iran which amounts to a declaration of war against Iran, well according to the Constitution of the United States and the observations of the U.S. Supreme Court, only Congress has the power to declare war. If this was the Star Wars universe, one might say that Chancellor Palpatine has essentially declared himself emperor and ended the Republic. This however is reality and therefore much more serious if indeed the case.

5. Finally, we come to realize that Canada’s failure to put more pipeline infrastructure in place or improve its national defences is even more glaring considering what has happened to world energy markets. Ramping up oil production and export pipelines now as a better late than never strategy may not be enough given the length of time it takes to put the infrastructure in place. We have probably made the same mistake with respect to our ramping up of defence spending as the arrival of new ships, submarines and jet fighters is still years away even if decisions are made today. Indeed, we have still yet to decide who will build our new submarines or our new jets. Pandemic notwithstanding, we spent the last decade ramping up the federal footprint largely in areas of income and social transfers. We have been caught with our pants down in so many ways and despite Prime Minister Carney’s flurry of travel activity to move us foreword on trade and defence, we are still moving slowly when it comes to getting things done. God help us all.

Monday, 9 March 2026

How Overvalued is the Stock Market?

Stock markets have been taking a beating over the last week or so because of the war in the Middle East involving Iran and the United States and the TSX has been no exception. Naturally, anyone with investments in the markets is concerned and wondering if markets are going to fall dramatically further. For Canadian markets, a lot hinges on the degree of uncertainty being generated by both the Middle East conflict as well as the U.S. Supreme Court ruling on the legality of President Trump’s tariffs. Markets have already fallen quite a bit due to the broadening of the Iranian conflict, and the price of oil and other commodities has risen. With respect to assorted fund managers as well as pension funds and RRSPs, it depends on how many of the investments are tied to the Middle East region and the degree of exposure in terms of the proportion of investments held in affected sectors.

The rise in oil prices if sustained could trigger a new burst of inflation and higher interest rates which in turn would further depress stock markets. A lot depends on how long the conflict lasts but the degree of uncertainty is high - making things worse for markets - because it is unclear what long-term plan is for Iran and the Middle East by the Americans. As for the Supreme Court ruling, it is a positive development that suggests that the days of tariffs on Canadian American trade flows may be numbered but again it depends on what the President's response is in terms of finding new ways to levy barriers to trade.

Yet, these are all short-term factors and the long-term trends in stock market valuations also need to be figured into the equation. This is done with a regression using STATA in which the TSX was regressed on a monthly time variable with num1 equal to January 1956 and num843 equal to March 2026 with the March value being the end of the first week only. Figure 1 presents the monthly closing value of the TSX from 1956 to 2026. Viewed over the long run, stock markets do trend up though closer examination suggests that the last three years represent a particularly exuberant upward trend. From January 2023 to January 2026, the TSX monthly closing valuation has risen from 20,767 to 31,924 – representing an increase of just over 50 percent which is quite astounding.

Figure 2 presents the same data but with linear and 2^nd order polynomial fits and they suggest that the last three years are well out of the long-term trend of the TSX at least as measured by these two regressions. The linear fit suggests that the TSX should currently be at about 17,400 while the polynomial fit suggests it should be at 23,000. Both estimated valuations are based on rather crude simple regression techniques but are substantially lower than what we are currently at.

The polynomial fit closely tracks the data until 2024 when it falls quite below but with an r-squared of 96 percent, it does much better than the linear fit which with an r-squared of 82 percent starts to diverge substantially circa 2020 – also the year the pandemic started. The post 2020 era in general has been a rather severe break with what has gone before in many aspects of economic and social life. One could assume that post 2020 we are in a brave new world when it comes to stock market valuations and economic performance and “this time is different” when it comes to the recent surges in the stock market. We need not worry. It is onwards and upwards! On the other hand, if one believes that these regressions somehow capture the fundamentals of long-term performance, then we are in a very fragile market situation, and the recent declines may only be the tip of the iceberg. We are in interesting times.

Wednesday, 18 February 2026

Thunder Bay's Evolving Waterfront

It was recently reported that another portion of the former CNR waterfront iron ore trestle will soon be coming down to make room for an expansion for Midcontinent Terminals cargo shipping facilities. The economic benefits of expanding port activity in terms of additional cargo and job creation notwithstanding, there is a certain amount of wistfulness associated with watching the grand structure shrink further. True, it can be seen as a barrier and an eyesore, but it also represents a rather impressive structure built during an era where it seems Canada was still capable of quickly building large, impressive structures as part of its industrial development.

Designed by C.D. Howe’s engineering firm, the trestle was built at the end of World War II to ship iron ore by rail out of the Steep Rock Mine at Atikokan and the end of the mine along with signalling the decline of Atikokan also ended the need for the trestle. Of course, the right of way and run up to the main dock facilities are long gone but the remnants are still quite impressive in terms of their sheer size especially when one is out in the harbour and sailing by. A number of years ago, had the pleasure of a harbour boat tour with friends and took some pictures of the trestle. Enjoy.