But ‘the picture is not uniformly weak,' says economist of provincial outlook
Ontario's labour market remains under strain from tariffs and soft job growth even as other indicators improve, according to a recent report.
The province’s unemployment rate remains well above the national average and "would be even higher without a shrinking population that's downwardly pressuring the labour force,” notes TD economist Rishi Sondhi in the report titled "Ontario’s Economy: Green Shoots Beneath the Gloom."
Population growth fell from 3.6% year-over-year in the second quarter of 2024 to a decline of 0.9% by the second quarter of 2026, while employment growth slowed to between 0.3 and 1.2% over the same period.
Sondhi said Ontario is expected to post "one of the weakest rates of economic growth of any province this year," citing the province's reliance on the U.S. market and its large steel and automotive sectors.
Tariffs threat continues
The report flagged a newly threatened 50% tariff on about 5% of national, U.S.-bound exports as a risk that would "disproportionately hit Ontario if implemented." Residential construction investment was also down roughly 40% from its 2021 peak as of May 2026, and TD Economics cautioned that "no one would mistake Ontario's manufacturing sector for being on a strong footing."
The latest US threat of 50% tariffs on approximately $28 billion in Canadian goods could ultimately cost the Canadian economy around 50,000 jobs – and the trade uncertainty driving that risk is unlikely to disappear before the end of President Donald Trump's mandate, according to a previous report.
In July, the federal and Ontario governments announced that they are jointly investing more than $7.2 million to help over 500 workers in northern Ontario retrain and transition into in-demand careers.
Affordability and wage gains
TD Economics identified several offsetting trends, including improving housing affordability since the third quarter of 2023, driven by falling prices, declining interest rates and rising household incomes.
Ontario also recorded the lowest provincial inflation rate in Canada, at 2.0% year-to-date, compared with 2.6% nationally. That backdrop has supported rising inflation-adjusted wages, with hourly wages up 3.6% according to Labour Force Survey data and 5.8% according to payroll data in June 2026 cited by Sondhi.
The economist said improving affordability and real wage growth could support household spending and ease retention pressures for employers navigating a soft labour market.
Fiscal position and mobility
TD Economics said Ontario's fiscal position remains comparatively steady. The province was one of four provinces projecting a balanced budget over its planning horizon and one of three to lower its net debt-to-GDP ratio in fiscal 2024-25, bringing it to 35.7%, the lowest level since 2010-11.
The report also credited Ontario with progress on reducing interprovincial trade and labour mobility barriers, including "as-of-right" certification that allows workers licensed in other provinces to begin working immediately in many regulated professions while registration is finalized.
TD Economics concluded that "the picture is not uniformly weak" for Ontario, citing affordability gains, firmer incomes and fiscal stability as cushions against a difficult external environment, provided tariff risks do not intensify further.
Earlier this year, Ontario and the federal government announced that they are moving in tandem to secure Canada’s critical minerals future, using the Prospectors & Developers Association of Canada (PDAC) convention in Toronto to spotlight new policy moves.
The Bank of Canada's Q2 2026 Business Outlook Survey found a small share of firms reported adapting production, shipping or customs arrangements, or diversifying into new industries to reduce tariff exposure. This builds on a trend flagged in the Bank's January 2026 Monetary Policy Report, which noted Canadian businesses are looking for new markets and suppliers outside of the United States, even though these adjustments will initially be costly.
