With his government set to deliver an economic update, Premier Dalton McGuinty warned that Ontario faces some long-term economic challenges.

"It's hard for folks to come to grips with this, but the fact is our world has changed," McGuinty told reporters at Queen's Park on Wednesday.

In the old world, Canada had a low dollar that helped the province's manufacturing sector. "New world -- high dollar," he said.

"Old world -- low energy costs. New world that's coming folks, there will be carbon pricing of some kind, and costs will be going up."

The Ontario of tomorrow will have a substantially older population. "Children in school today will have to be one-and-a-half times as productive to support you and I in our old age than we were, relatively speaking," the premier said.

On Thursday, Finance Minister Dwight Duncan will provide an update on his March 26 provincial budget.

In that document, he predicted a deficit of $3.9 billion for 2008-09, and $14.1 billion for 2009-10. Duncan predicted at the time that Ontario wouldn't return to balanced budgets until the 2015-16 budget year.

The province has already revealed that the final deficit figure for Ontario's last fiscal year was $6.4 billion, or 64 per cent higher than forecast.

In late July, the province said a drop in revenues pushed the current deficit up to $18.5 billion on an annualized basis.

CTV Toronto's Paul Bliss said there is speculation Thursday's update will show the province is facing a $21-billion deficit, or about 50 per cent higher than predicted.

Duncan said Thursday that the province faces a "long, slow grind" to full economic recovery, with the global recession reducing the province's economic output to the level it was at in 2005.

To help fight the deficit, Duncan promised a review of service delivery, but wouldn't be specific about what cuts might be looming.

As to the deficit's size, Duncan would only say it will be consistent with the size of the province's economy relative to the size of the Canadian one.

With a report from CTV Toronto's Paul Bliss and files from The Canadian Press