01/16/2012 01:42 EST | Updated 03/17/2012 05:12 EDT

Ontario's economy rebounds slightly in third quarter to grow 0.7 per cent

TORONTO - Ontario's economy showed a "modest" rebound in the third quarter of 2011 after a slight decline in the previous period, Finance Minister Dwight Duncan said Monday.

Statistics released by the finance ministry showed Ontario's real Gross Domestic Product rose 0.7 per cent between July and September after falling 0.2 per cent in the second quarter last year.

"It’s tracking at 2.7 per cent annualized, and that’s pretty consistent with Canada for the same quarter," Duncan told reporters.

"I don’t anticipate that we’ll go into negative growth again, certainly in the fourth quarter, but you never know."

Manufacturing was the leading contributor to overall growth with a 2.2 per cent increase in output, led by transportation equipment with a 6.4 per cent hike in auto production.

That was a major turnaround after a 6.6 per cent decline in auto production in the second quarter of 2011 because of supply problems caused by the tsunami in Japan.

The third-quarter figures show Ontario consumers continued to buy more auto parts, furniture, appliances, drugs, alcohol and other personal goods, but business investment was flat.

The New Democrats want to scrap corporate tax cuts, complaining that companies are using tax breaks to fatten their bank accounts, not to re-invest and create jobs.

"If you’re going to give those kind of tax cuts, tax breaks, then we expect something in return, we expect jobs to be created," said NDP finance critic Michael Prue.

"We expect industry to reinvest, not just simply line their pockets, and the tax cuts have not done anything except line pockets."

Duncan pointed out a range of tax credits and reductions the Liberal government has implemented for businesses, and urged them to start investing again.

"We now have the most competitive tax system in North America and I expect Ontario businesses to invest in Ontario and to create jobs," he said.

"They’ve got to step up to the table and invest here in Ontario."

The third-quarter report does not include updated figures on Ontario's $16-billion budget deficit.

Moody's put the province on a credit watch last fall, but Duncan said he was optimistic Ontario would stay on track to meet its deficit-reduction targets and avoid an expensive credit downgrade.

"Moody's and Standard and Poor's have been downgrading just about every government in sight, but they did not downgrade us in the fall," he said.

"I’m feeling very optimistic that we can hit our numbers."

However, Progressive Conservative Leader Tim Hudak said he was worried the Liberals did not have the "spine" to make the necessary spending cuts to stay on track with deficit reduction, and called for an immediate public sector wage freeze to save $2 billion.

"Public sector wages are 17 per cent higher today in Ontario than a private-sector equivalent job, and when you take in the pensions and benefits it’s 27 per cent higher," said Hudak.

"More than half of the dollars we spend on government programs goes to wages and benefits, so clearly we have to address this issue."

External trade also contributed strongly to Ontario's growth in the third quarter of 2011 as exports advanced 1.1 per cent while imports declined 0.6 per cent. Duncan called that "an important development" and good news for the province.

Investment in residential construction rose 5.2 per cent in the second quarter. Spending on new housing construction jumped 5.7 per cent while renovation activity increased 6.2 per cent.

Ontario's unemployment rate is down to 7.7 per cent and the province created 121,000 net new jobs in 2011, added Duncan.

"We’ve had a modest recovery (but) unemployment remains too high," he said.