Ontario’s deficit is now estimated to be almost four times larger than projected prior to the COVID-19 crisis. Over the next two years, the province that already had the largest subnational debt in the world is expected to add an extra $78 billion in red ink. Ontario Financial Accountability (FAO) Officer Peter Weltman said even these numbers may prove to be too optimistic if a second wave of COVID-19 forces longer shutdowns or the economy doesn’t bounce back as expected.
“We’re saying that the recovery will happen within about two years-ish and we’ll slowly get back to where we were,” Weltman said Monday. “But of course that’s subject to a lot of uncertainty and it is because the government shut the economy down … These are what’s known in the lingo as a tail risk, as a risk that isn’t part of our normal experience.”
The Ontario government is allocating $4.1 billion this year on COVID-19 spending, at the same time that revenues plunge. “Ontario revenues are projected to drop by $21.7 billion or 14% in 2020-21, much larger than the revenue decline which occurred during the 2008-2009 global financial crisis,” the FAO says in its Spring 2020 Economic and Budget Outlook report released Monday.
The FAO is now predicting a 9% drop in GDP this year, the largest annual decline ever recorded for Ontario. Assuming the province will allow for the gradual reopening of businesses to continue through the late spring and summer, real GDP is forecast to “largely rebound” next year, rising by 8.5%, the report says. The rebound should be quicker than experienced after a traditional recession because the economy was forced close by the government, Weltman added.