Major City Insights

Kingston

August 8, 2023

Overview
Labour and employment
Economic indicators
Construction and real estate

Slower growth ahead

After advancing at a brisk pace over the past two years, Kingston’s economy is forecast to lose plenty of steam over the short term.

A domestic economy running low on gas, coupled with weaker global demand, suggests an imminent economic slowdown is in store for Kingston.

On the domestic front, households and businesses will continue to be challenged by elevated inflation and rising interest rates this year.

Indeed, the climb in interest rates, which began in March 2022, is expected to hurt many parts of the Kingston economy, particularly in the second half of 2023 when the weight of the higher rates is fully felt.

A loss in consumer purchasing power will lead to households curtailing their spending, while higher borrowing costs will act as a disincentive for businesses to prop up their capital spending.

On the global front, although supply chain problems have greatly subsided over the past several months, the Kingston economy will instead be challenged by softer global demand, particularly from the United States, which continues to grapple with high inflation and interest rates this year.

Despite the slower GDP growth anticipated this year, Kingston’s economic expansion will still be above the provincial average for 2023.

As inflation and interest rates steadily come down next year, both domestic and global economic conditions will improve, although baked-in weakness from the second half of 2023 will hold down overall GDP growth for 2024.

All in all, after expanding by an estimated 3.4 per cent last year, real GDP in Kingston is forecast to advance by a more modest 1.3 per cent in 2023 and 2024.

Labour and employment

Job creation in the city surged last year, with a record-high 6,650 new jobs created in 2022.

With economic growth slowing, such a feat will not be repeated anytime soon, but a respectable 2,720 jobs are still expected to be added to the workforce in 2023, an increase of 3.1 per cent.

Job growth will be greatest in manufacturing, public utilities, professional services, and finance, insurance, and real estate—all sectors forecast to record double-digit gains in 2023.

On the other hand, sizable job losses are expected in transportation and warehousing, as well as wholesale and retail trade.

As the economy begins to regain its footing at the start of next year, another 998 jobs will be added to the city’s workforce in 2024.

Overall, after increasing by 8.2 per cent last year, employment in Kingston is forecast to expand by 3.1 per cent this year and 1.1 per cent in 2024.

Solid employment gains to date have already knocked a few notches off the unemployment rate.

As a result, the unemployment rate is forecast to drop from 5.5 per cent in 2022 to 5.2 per cent this year, before inching down further to 5.1 per cent in 2024.

Economic indicators

The domestic and global slowdown will also affect commercial services, with many industries forecast to see GDP growth decelerate this year.

Most notably, the retail trade industry will take a big hit from consumer purchasing power being eroded by still high inflation and the climb in interest rates.

With interest rates steadily increasing for more than a year, households have already started to feel the pinch from higher debt costs.

Households are therefore expected to rein in their spending on big-ticket items and durable goods.

Accordingly, the drop in consumer spending on goods will be a drag on retail trade output this year.

Real GDP in the retail trade industry is forecast to decline by 2.9 per cent this year before bouncing back with 1.8 per cent growth in 2024.

Higher interest rates will have less of an effect on demand for services.

Despite an anticipated reduction in traffic to tourism-related industries, client-facing services—such as accommodation and food services, as well as arts, entertainment, and recreation—are expected to continue on their comeback trail and record solid growth in 2023 and 2024.

Building on double-digit gains last year, accommodation and food services output is forecast to expand by 6.4 per cent this year and 5.8 per cent in 2024, while output in arts, entertainment, and recreation is expected to increase by 12.9 per cent and 4.6 per cent.

Nevertheless, output in these industries is expected to remain below pre- pandemic levels until the second half of 2024.

The outlook for Kingston’s all important non-commercial services sector, which comprises education, healthcare and public administration and accounts for more than one-third of the city’s output, is uneven.

Healthcare will be the non-commercial services sector growth leader, expanding by 5.5 per cent this year and 3.9 per cent in 2024 as pre-pandemic medical services continue to get back on track.

Following 4.8 per cent growth last year, the education sector is forecast to see output growth ease considerably, to 1.2 per cent in 2023 and 0.4 per cent next year.

Public administration output will post one more year of positive growth of 1.9 per cent in 2023 before fiscal restraint sets in and leads to real GDP declining by 0.6 per cent in 2024.

Construction and real estate

Over the past few years, Kingston has seen some sizable swings in its housing market.

In 2022, housing starts plummeted sharply as pandemic-related fiscal stimulus dropped off and mortgage rates jumped up.

Although interest rates will remain elevated this year, housing is still much more affordable in Kingston relative to other larger cities, and this will help prop up housing starts in the city.

Increased migration to the city will also boost housing demand over the short term.

Accordingly, housing starts are forecast to increase by a steep 50.7 per cent this year, to 984 units, before climbing further to around 1,026 units in 2024, an increase of 4.2 per cent.

The sharp jump in home-building this year will underpin much of the increase in total construction output, as activity on the non-residential side will be more modest.

The completion of several non-residential projects last year, including the $180-million Waaban Crossing bridge, will take some steam out of non-residential construction in 2023.

Still, non-residential construction activity will continue to be bolstered by infrastructure projects and ongoing work on the city’s 30-year waterfront master plan, which includes around 138 projects along 280-kilometres of shoreline.

All in all, after declining by 2.7 per cent in 2022, construction output is forecast to increase by 3.7 per cent in 2023 and 2.3 per cent in 2024, underpinned in large part by solid residential construction.