Canada’s Slowing Growth Could Worsen Deficit
World Economy

Canada’s Slowing Growth Could Worsen Deficit

A slipping Canadian economy, highlighted by another downgraded Bank of Canada forecast, could add billions of dollars to the federal deficit, as Finance Minister Bill Morneau is cautioning the government’s Nov. 1 fiscal update will show economic challenges have been greater than expected.
The day after the central bank lowered its economic outlook again, Morneau met with his Advisory Council on Economic Growth and released the panel’s initial set of recommendations on how to boost the Canadian economy over the long term, including creating a new infrastructure bank; creating a foreign direct investment agency; and dramatically boosting immigration, AAP reported.
Yet, staring Morneau and the advisory council in the face is lower short-term growth than expected in the spring budget and, what economists say, is almost certainly eroding federal finances.
“Yes, the challenges have been greater than might have been expected at the time of the budget. That’s why we took a factor for prudence and that’s why we are working today with this council to think about how we deal with those very real challenges,” Morneau, flanked by advisory council chairman Dominic Barton, told reporters Thursday in Ottawa.
Slower-than-expected growth in the United States, a rebalancing of the Chinese economy, and the fallout of the Fort McMurray wildfires are some of the challenges that have affected the Canadian economy, he said.
Morneau, when asked, wouldn’t say if he’ll introduce new spending in the fall economic statement to boost the stubbornly sluggish Canadian economy.
The fall update will give Canadians a better understanding of the country’s economic situation, the challenges Canada faces globally and how the 2016 budget measures are impacting the economy, he said.
The Bank of Canada now forecasts real gross domestic product to grow just 1.1% in 2016, down from a July projection of 1.3%. For 2017, the bank projects the economy to grow 2%, down from its previous estimate of 2.2%. The federal budget projected a deficit of $29.4 billion in 2016-17 (based on a $6-billion contingency in case of slower-than-expected growth).
A TD Economics report released last week projected the federal deficit will reach around $34 billion in the current 2016-17 fiscal year–close to $5 billion higher than forecast in the March budget.
Derek Burleton, deputy chief economist with TD Bank Financial Group, said their data suggests it’s clear “deficits are going to be higher” than initially forecast.


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