Major City Insights
London
August 10, 2023
Household resilience fuels gains in the services sector
London’s economy had a healthy recovery from the impacts of the pandemic. Real GDP grew by 5.6 per cent in 2022, the strongest growth of all major cities in Canada. We expect the London economy to expand 2.0 per cent this year and another 1.2 per cent in 2024.
Volkswagen’s massive electric vehicle battery plant in St. Thomas will put the London area on the path to becoming a global leader in electric vehicle and parts manufacturing. Construction is set to start in 2024, with production likely to begin in 2027.
Consumers have faced interest rate hikes and elevated rent prices for well over a year. However, excess savings over the last few years, combined with a tight labour market, have given households the confidence to continue spending on services.
Much of the growth in London’s economy this year is expected to come from the city’s arts, entertainment, and recreation industry, as well as its accommodation and food services industry. Output in these two sectors has dramatically increased since pandemic-related restrictions have been lifted.
Supply chain issues eased throughout 2022. As a result, manufacturing output rose by 3.8 per cent last year. But our call is that output in this industry will contract by 0.8 per cent in 2023.
Demand for durable goods, especially big-ticket items that often require loans, will ease as recent interest rate hikes continue to work their way through the economy.
London’s housing market took a hit last year following a pandemic-induced record year in 2021. Housing starts fell to about 3,360 units in 2022, a 40.0 per cent decline from 2021. We think this trend will continue in 2023, with total housing starts slipping to 3,250 units.
As a result, output in London’s finance, insurance, and real estate sector is expected to contract by 0.2 per cent this year.
London’s employment levels increased by 4.9 per cent in 2022. This year, employment growth is expected to slow to 0.9 per cent.
The city’s annual unemployment rate will average 5.0 per cent this year and 5.5 per cent in 2024.
Labour and employment
London’s employment grew by 4.9 per cent last year—amounting to 13,700 jobs being added to the labour market.
Most job growth this year will come from the city’s services-producing industries. Employment in the services sector will grow by 1.2 per cent, while employment in the goods-producing industries is expected to contract by around 0.2 per cent.
As a result, total employment growth is expected to decelerate to 0.9 per cent, with only 2,600 net new jobs being added to the labour market in 2023.
The arts, entertainment, and recreation industry and the primary and utilities industry will be employment growth leaders this year—with forecast job gains of 23.0 per cent and 38.6 per cent in each industry, respectively.
London’s health services industry saw employment growth decelerate to 1.3 per cent last year. However, our call is that job growth in this industry will increase by 7.9 per cent this year and another 3.6 per cent in 2024.
Two of the city’s largest industries—manufacturing and the finance, insurance, and real estate industry—posted modest job gains last year. This year, our call is that manufacturing employment will fall by 0.1 per cent, while employment in finance, insurance, and real estate will grow by 5.6 per cent.
Health services, manufacturing, and finance, insurance, and real estate now make up around 40 per cent of the city’s labour force—a ratio that is expected to remain the same throughout the forecast period.
Employment in London’s construction sector will pick up steam in 2024 as construction of Volkswagen’s EV battery plant begins.
The battery plant will not only create jobs in construction and manufacturing but also generate many spin-off jobs in other industries such as transportation and warehousing.
Meanwhile, the area’s new Amazon fulfillment centre will continue to add jobs to London’s transportation and warehousing industry.
Looking ahead, we expect job growth in manufacturing to be around 0.2 per cent in 2027—the battery plant may take some time to reach full employment. However, we expect a significant increase in manufacturing jobs past the medium term.
London’s labour force participation rate is expected to increase over the next two years. The participation rate is forecast to rise to 65.0 per cent in 2024. Between 2024 and 2027, it will hover around 64.0 per cent.
Economic indicators
London’s health services sector had a banner year in 2022, with output growing 5.9 per cent. Real GDP in this sector is forecast to grow by 6.6 per cent in 2023 and 3.3 per cent in 2024.
The city is known for healthcare services and medical research. In fact, the health services sector makes up around 10 per cent of London’s economy.
Output in manufacturing is expected to decline by 0.8 per cent this year but then pick up steam throughout the forecast period.
Between 2024 and 2027, manufacturing output is expected to grow at an average annual rate of 2.4 per cent.
Of interest for the longer term is Volkswagen’s new EV battery plant, which will likely open in 2027. It is expected to benefit the area’s manufacturing industry for years to come.
The local arts and entertainment industry and the accommodations and food services industries have greatly benefited from the lifting of all pandemic restrictions. What’s more, hosting the 2023 Tim Hortons Brier curling championship in March generated millions of dollars in economic spin-off benefits.
The city’s arts and entertainment industry will likely be a growth leader this year, with output rising by a stellar 15.6 per cent.
In 2024, the accommodation and food services sector will lead the way in output growth, as real GDP in this industry is forecast to rise by 5.4 per cent.
London’s population is expected to grow by 2.5 per cent this year and another 2.1 per cent in 2024.
Housing in the Forest City is more affordable than in many other major cities in Canada. This relative affordability will continue to draw people to move to London, especially with continued remote work options that were sparked by the COVID pandemic.
Significantly higher levels of net international migration have also brought more people to the region recently.
Wages and salaries per employee are expected to rise by 2.6 per cent this year and by another 2.5 per cent in 2024.
Household disposable income will rise by 1.6 per cent this year, compounding last year’s 7.4 per cent increase. Our call for 2024 is that household disposable income will grow by 2.3 per cent.
Inflation remains a concern for households across Canada. London’s inflation rate won’t fall close to the 2.0 per cent target range until the fourth quarter of 2024.
Households have proven to be resilient during this period of high inflation and interest rates. Nominal retail sales are expected to rise by 1.5 per cent this year, compounding a 12.3 per cent increase in 2022—in part thanks to a tight labour market. Next year, our call is that retail sales will grow by 3.8 per cent.
Overall, we see London’s economy expanding at an average annual rate of 2.0 per cent between 2024 and 2027.
Construction and real estate
Real GDP in London’s construction industry contracted 0.4 per cent in 2022. Still, output levels remain above pre-pandemic (2019) levels.
The reconstruction of Dingman Drive, the East London Link project, and construction of the Adelaide Street underpass are examples of multi-million-dollar projects that will help construction output to bounce back this year.
As a result, real GDP in the construction industry is expected to rise by 5.0 per cent in 2023.
Construction of Volkswagen’s $7.0-billion EV battery plant in St. Thomas will likely begin in 2024, giving the area’s construction industry a boost over the next few years as current projects conclude.
Partially offsetting the positive news about major non-residential investment in the city, the housing market is expected to cool this year.
However, total housing starts will gradually rise over the forecast period. By 2027, starts are expected to reach 4,310 units.
Overall, output in the city’s construction sector is forecast to grow at an average annual rate of 1.8 per cent between 2024 and 2027.
Appendix B: Users Guide
Appendix C: Canadian Census Metropolitan Areas
National and London data