Despite a number of challenges, including the strong Canadian dollar, Ontario’s economy should grow by 2.2% this year, and 2.0% in 2005, say economists at Bank of Nova Scotia.

“Ontario’s outlook is being constrained by slower export gains and rising imports,” said Mary Webb, senior economist, Scotia Economics, in a release. “Yet Ontario’s economy still has pockets of strength, including financial and business services, IT design and support, and an ambitious agenda of infrastructure projects.”

Nationally, real growth is expected to average around 2 1/2% in both 2005 and 2006, with every region across Canada experiencing increased competitive pressures. Given the current strength in international commodity prices, Scotia Economics says resource-rich provinces are expected to be more insulated, particularly in the West, while manufacturers in Central Canada will be more vulnerable.

“Corporate earnings in Ontario are being squeezed by a number of factors including higher energy costs, a strong and potentially even stronger Canadian dollar, moderating U.S. growth, and intense competition from ultra low-cost overseas producers,” said Webb.

According to Scotia Economics, mortor vehicles assembled in Ontario will likely advance a modest 2% this year, but edge lower in 2006. Less encouraging is the further consolidation announced for the province’s aerospace industry.

“A number of centres across Southern Ontario with a large manufacturing presence will be particularly sensitive to the stronger Canadian dollar,” said Webb.

Consumer spending in Ontario is expected to grow by about 2 1/2% this year and next. Provincial housing starts are set to cool, with pent-up demand largely exhausted.

“The challenge for the Province is to rein in spending growth in fiscal 2005-06 when a number of factors will cause the increase in revenues to slow significantly. A further issue for the provincial government is including school boards, hospitals and community colleges in its final statements for next year,” said Webb.

Infrastructure projects, including municipal transit, water treatment and border-crossing upgrades, will maintain buoyant construction activity in Ontario as housing starts slow.