Ontario says economy shrank in second quarter

Wed Oct 26, 2011 1:47pm EDT
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By Claire Sibonney

TORONTO (Reuters) - Ontario's economy contracted 0.3 percent in the second quarter after seven consecutive quarterly gains, raising the risk Canada's most populous province could slip into recession.

A government report released on Wednesday showed Canada's manufacturing powerhouse, which relies heavily on the shipment of autos and parts to the United States, saw exports decline 1.4 percent, while imports increased 1.2 percent in the second quarter.

The auto sector was hit hard in the second quarter by supply chain disruptions caused by the tsunami in Japan.

Statistics Canada reported in August that the Canadian economy as a whole shrank in the second quarter, its first quarterly fall since the 2008-09 recession, due in part to temporary factors such as Japan's disaster.

But the latest data adds to an already shaky outlook for Ontario and its minority Liberal government, which has said it will take until at least 2017 to erase a C$16 billion ($15.8 billion) budget deficit.

An election earlier this month that saw the ruling Liberals lose their majority status is expected to make it harder for the government to make tough decision, which may include tax hikes and painful spending cuts.

In its quarterly update, the province said economic production estimated on an industry basis declined 0.4 percent. Production by goods-producing industries lost 1 percent, while services-producing industries dropped 0.2 percent.

The textbook definition of a recession is two consecutive contractions in gross domestic product.   Continued...

<p>Condominiums are seen under construction in Toronto, July 10, 2011. REUTERS/Mark Blinch</p>