The report was compiled by the Ontario Chamber of Commerce, the Mowat centre and Leger Marketing during meetings with business, civic and government leaders.
The report says Ontario must deal with debt, support innovation, enhance productivity and train more skilled labour.
The report says Ontario businesses are not as productive as they could be and many are not sufficiently exposed to rapidly growing emerging markets.
It also notes that there are not enough students entering the skilled trades to meet labour market demand.
Another major challenge is Ontario's $16-billion deficit, and the report notes that while the government proposes balancing the budget by 2017-18, that is three years longer than most provinces.
The report says Ontario must develop a long-term strategy for restraining public sector wages.
"Escalating wages and benefits have created a huge liability for provincial taxpayers," it says.
"Without some action to introduce comprehensive restraint, balancing the budget will remain difficult," the report says.
During the crucial next five years, Ontario must prepare for even greater international competition, deepen its collaboration globally, and identify and invest in the province's competitive advantages, the report says.
The report praises Ontario's overall tax environment, saying there has been improvement due to the elimination of the capital tax and the adoption of the Harmonized Sales Tax.
The report also says Ontario universities are producing world leading research, but the province is struggling with turning this research into marketable products and business solutions.
On trade, the report notes that 78 per cent of Ontario's exports are destined for the U.S. where economic growth remains slow.
Businesses have identified China, India and Brazil as some of the most important markets, but they make up less than two per cent of Ontario's current exports.
"Ontario businesses are underexposed to emerging, rapidly growing economies," the report states.