TORONTO - Ontario's economy managed to skirt a recession with a slight bounce in the third quarter amid warnings that a contraction is looming due to rising unemployment and difficult global conditions.

The province's gross domestic product grew by 0.1 per cent in the July to September period, following a 0.2 per cent increase the previous quarter -- a small boost that means the province continues to avoid a technical recession.

"This is a very glass half-full, half-empty sort of outcome," said senior TD Bank economist Craig Alexander.

"What it tells us is the Ontario economy was very weak but it did manage to avoid a contraction."

From a worker point of view, there is still reason for concern.

Jobless numbers released Friday show Canada shed 34,400 jobs in December as the unemployment rate jumped three-10ths of a point to 6.6 per cent.

In Ontario, the unemployment rate rose to 7.2 per cent from 7.1 per cent the month before.

"There's been a lot of challenges from an industry point of view with significant job losses in manufacturing," Alexander said.

The unemployment rate "is running sixth-10ths of a percentage point above the national average, and what that tells you is that Ontario is feeling the brunt of the economic weakness."

TD is forecasting flat growth for the province in 2008 and a 0.5 per cent drop for the fourth quarter.

For 2009, Alexander expects Ontario's economy to shrink by 1.8 per cent.

"We will see the Ontario economy experiencing a contraction because the Canadian economy overall is in the midst of a recession," he said.

Ontario Finance Minister Dwight Duncan wasn't available to comment on the numbers Friday, but has said he is more worried about a long period of slow growth than a recession.

Premier Dalton McGuinty has warned of tough times ahead as the province faces its first deficit in years and struggles to work its way out of its newly acquired have-not status.

Massive job losses in Ontario's key manufacturing sector and dwindling revenues have left the province staring down a $500-million deficit, which could balloon amid a bailout package for struggling automakers.

Opposition leaders say unless McGuinty's Liberal government comes up with an effective plan soon, things could get much worse.

"I think everyone recognizes that the September to December was much, much worse because there was a loss of literally tens of thousands of jobs," said NDP Leader Howard Hampton.

"What it says to me is the job situation is getting much worse, Ontario's economy is getting much worse and we've yet to see any kind of jobs plan, any kind of jobs stimulus package from the McGuinty government."

Progressive Conservative Leader John Tory said the situation calls for "unprecedented co-operation and unprecedented action."

The McGuinty government, he said, has not only failed to come forward with a meaningful plan for infrastructure development, but also "hasn't indicated anything we're going to do to make this a more attractive place for the innovators of tomorrow."

The third-quarter economic numbers were boosted by investments in machinery and equipment as well as exports, according to the Finance Ministry.

Net trade also provided a bit of support to economic growth, but household spending was flat amid a decline in spending on semi-durable goods, such as clothing, and lower motor vehicle purchases.

Residential construction spending also fell off due to a drop in renovation activity, the first decline in more than a year.

In the third quarter, the Canadian economy grew by 0.3 per cent and the U.S. economy declined 0.1 per cent.