Ontario’s economy may be slowing down, but 2018 still is poised to be a positive year for Canada’s largest province.

After an increase in real gross domestic product (GDP) of about 3% for Ontario in 2017, most economists believe that healthy consumer spending in both Canada and the U.S., as well as continued investment by the Ontario and federal governments, will contribute to real GDP growth of around 2% in Ontario this year.

“I still would characterize that [rate] as being fairly vibrant growth in Ontario,” says Robert Hogue, senior economist with Royal Bank of Canada (RBC) in Toronto. “Ontario continues to be among the faster-growing provincial economies in Canada.”

RBC anticipates real GDP will increase by 2.1% in Ontario in 2018, while Vancouver-based Central 1 Credit Union and Toronto-Dominion Bank (TD) have slightly rosier predictions of 2.3% for the province. The Ottawa-based Conference Board of Canada has the most conservative estimate for Ontario’s real GDP growth in 2018, at 1.9%.

As in recent years, the public sector will add to Ontario’s economy in 2018 through several spending projects. For example, there are significant large infrastructure projects underway – particularly in public transit – that are being funded at both the federal and provincial level.

“There are big projects in Ottawa and Toronto for public infrastructure,” says Marie-Christine Bernard, associate director, provincial forecast, with the Conference Board. “Those will carry on and continue to boost government investment [in the province].”

Ontario’s provincial government is unlikely to make more large project announcements, given the potential risks of a future economic downturn, says Michael Dolega, senior economist with TD.

“Governments and individuals have to prepare themselves for the possibility that in the medium term, there’s going to be some form of significant economic downturn – at least, the possibility of that certainly is not zero,” says Dolega. “The [Ontario] government would be prudent to make sure the books are in order.”

Even though Ontario’s Liberal government “will want to please people” in its next budget, given there is a spring election on the horizon, says Hogue, questions remain about how the government will do so and still pay its bills.

“The debt has gone up quite considerably,” he says, “and so we will be watching very closely with respect to what will be announced in the provincial budget.”

In the meantime, consumer demand will remain robust this year, given that Ontarians will have more money in their pockets, thanks to rising wages.

Besides general wage increases, Ontario also boosted its minimum wage to $14 an hour from $11.60 as of Jan. 1. How this increase will affect Ontario’s economy is unclear. On one hand, a higher minimum wage is a plus for the economy because consumers will have more money to spend. On the other hand, business owners may be less inclined to add to their workforce.

A recent analysis by the Conference Board, for example, estimates that the wage increase may lead to 29,000 fewer jobs being created in 2018 than otherwise may have been.

Despite this potential impact, economists expect to see job gains this year. TD and RBC predict employment growth of 1.2% and 1.4%, respectively, in 2018.

Still, the increase in the minimum wage won’t be the “dominating factor” of Ontario’s economic performance this year, Bernard says. Instead, stricter mortgage rules and higher interest rates are likely to have more influence.

The Bank of Canada (BoC) hiked its benchmark interest rate by 25 basis points to 1.25% in mid-January, and is likely do so again before the year is out. These increases could put a strain on consumer spending, given Canadians’ high debt loads.

One possible saving grace, though, is that the BoC is increasing interest rates at a much slower pace than in previous tightening periods, says Dolega. That could make things slightly easier for indebted households.

“The speed of increase is relatively muted,” he says, “so that should allow a little bit of breathing room and a little bit of time to adjust to the new reality. ”

New federal mortgage rules also are likely to cause a slowdown in the housing market and related consumer spending. Beginning in January, mortgage lenders must subject both non-insured and insured mortgage applicants to a “stress test,” forcing borrowers to qualify for a higher rate than the one negotiated for their mortgage contract.

As a result, some individuals may choose to hold off on purchasing a home in the coming year and instead continue to save for a down payment.

“The market still will be robust,” says Edgard Navarrete, banking economist, Ontario Region, with Central 1 in Toronto, “but it’s not going to have the activity that we saw last year.”

The Conference Board anticipates there will be 9% fewer housing starts this year compared with 2017. As a result, residential consumption is likely to slow down in the coming year because Ontarians will be less likely to buy “big ticket” items, such as appliances and furniture, which typically accompany the purchase of a home.

Exports – particularly those going to the growing U.S. economy – are expected to be positive if muted in the coming year. The Conference Board, for example, anticipates that exports will grow by 1.6% in 2018.

The automobile industry is likely to experience a rebound in 2018 after hitting a few snags in the latter half of 2017, including a strike at General Motors of Canada Ltd.’s CAMI Automotive plant in Ingersoll, Ont.

Of course, a potentially dark cloud hanging over the auto sector – and all Canadian exports, for that matter – is the renegotiation of the North American Free Trade Agreement (NAFTA).

“It’s Concern No. 1 for exporters,” says Peter Hall, vice president and chief economist with Ottawa-based Export Development Canada. “Everybody is worried about this.”

Economists agree that although there’s plenty of uncertainty surrounding the NAFTA negotiations, Canada’s provincial and national economies can withstand any changes to the treaty, including its failure.

“Our view is that if NAFTA fails, it would obviously have a negative impact for Canada,” says Hogue. “But if the outcome is that the World Trade Organization rules [apply, the failure of NAFTA] would not be catastrophic; it would not derail the Ontario [economy] or Canada’s economy.”

Exports that could give Ontario’s economy a boost in 2018 include machinery and equipment, as well as services such as fintech and artificial intelligence.