Ontario GDP falls 0.3% in Q2

With lower growth projections for this year and next, it’ll be up to all three parties in the minority parliament to make sure the deficit reduction targets are met or the province could face a downgrade in its credit rating, especially if they get bogged down in partisan infighting, warned Duncan.

“Our principal challenge now is to make sure we get rid of the deficit and if we miss targets, we have to be cognisant of how markets will react,” he told reporters.

“When Standard and Poors downgraded the United States it had less to do with their fiscal circumstances than it did with the fact that their legislators couldn’t get their act together.”

The 0.3% drop in gross domestic product in the second quarter followed seven consecutive gains, and was blamed on a weakened U.S. economy and an auto parts shortage caused by the tsunami in Japan.

Ontario will return to positive growth in the third quarter and won’t have two negative quarters in a row, which is the classic definition of a recession, said Duncan.

“Virtually all of the bank economists and others I’ve met with are quite confident the third quarter will return to growth,” he said.

“The real challenge for all governments is going to be next year. We see a very large decline in projected rates of growth with strong rebounds in 2013.”

The Opposition wasn’t as confident as Duncan in having Ontario’s growth snap back to positive territory in the third quarter.

“He says the next quarter will be fine. I’ll believe it when I see it,” said Progressive Conservative finance critic Peter Shurman.

“He talks about moving to a non-deficit situation and getting the budget in balance. I’m not going to hold my breath.”

The New Democrats campaigned on giving families relief from the HST on home heating and electricity bills, something Duncan appeared to pour cold water on with his talk about altering government spending priorities to get the deficit down.

Everyone hopes the economy grows in the next quarter, but the government should realize people need help in the form of HST relief, said NDP Leader Andrea Horwath.

“We’re all hopeful and we all want to see that kind of result, but at the same time we have an obligation to make families stronger,” said Horwath.

“I don’t think that that’s what Mr. Duncan was saying, and it’s actually quite concerning.”

The Liberals won’t have to delay implementation of key campaign promises to reduce tuition fees by 30% and introduce a home renovation tax credit for seniors, but will have to change its priorities to keep cutting the deficit, said Duncan.

“Our platform was affordable and we will implement (it),” he said.

“We have a mandate and will implement over a period of time, and I look forward to showing you just how we plan to do that.”

That sounds a lot like “my way or the highway,” complained Horwath, who warned the Liberals have to start acting like the minority government they were reduced to in the Oct. 6 election.

“I think it’s important that we don’t get into a game of brinkmanship, a game of vest beating and who’s got the biggest caucus … because the people who get lost in that conversation are the everyday Ontarians,” said Horwath.

The NDP leader did not rule out an increase in the deficit to pay for some HST reductions, but a spokeswoman said later the party remains committed to the same deficit reduction schedule as the Liberals.

The second quarter figures from Ontario’s Ministry of Finance show business investment on plant and machinery jumped 4.9%, which the Liberals credit to their tax policies, including the HST which lowered input costs for businesses.

Consumer expenditures increased slightly for the ninth consecutive quarter as people bought more auto parts, furniture, appliances and other durable goods.

Spending on new housing construction increased 2.8%, while renovations increased 4.6%.

Output from Ontario’s manufacturing sector decreased by 2.3% in the second quarter, while auto production dropped 8.4% because of supply problems caused by the tsunami in Japan.