The government of Ontario has cut its growth forecast for the province.

In an economic update released today, the government suggested that while Ontario’s economic outlook is solid, a number of external risks – including higher oil prices, the strong Canadian dollar, higher interest rates and a slowing in U.S. economic growth – could affect growth in future years.

GDP growth is predicted to continue on an upward trend from 2.2% this year, to 2.6% in 2006. However, that is down slightly from 2.8% projected in the 2005 Budget.

The province remains on track to eliminate the deficit, it added. “Ontario’s economic foundations are firm, and the outlook is positive. Ontario is well positioned to manage the challenges and opportunities ahead, due to its economic diversity and growing, highly educated population,” said new finance minister Dwight Duncan. “However, a prudent government makes provisions for potential economic change by ensuring it manages with discipline.”

Higher revenues mean that the 2005-06 deficit is now projected to be $2.4 billion, an improvement of $427 million from the 2005 Budget projection. If the $1-billion reserve built into the plan to protect against unexpected and adverse changes to the economic and fiscal outlook is not required, the deficit would be reduced further to $1.4 billion.

“We remain on track to eliminate the deficit by 2008-09 at the latest – or a year earlier than that, if the reserve is not required in 2007-08,” Duncan said.