Private-sector economists are projecting modest annual economic growth above 2 per cent for the next five years, setting the stage for a significant pre-election surplus next year.
Finance Minister Joe Oliver met with private-sector economists Monday in Ottawa and later released an updated forecast for growth, inflation, employment and other measurements.
“We’re on track and we will be in a surplus position next year,” Mr. Oliver told reporters following the meeting.
The Conservative government uses the average forecast as the foundation of its revenue projections for the fall economic update and budget. However, Ottawa adds an “adjustment for risk” into the numbers by underestimating revenue by $3-billion a year in an effort to cover unforeseen changes in the economy.
When the private sector forecasts prove to be accurate, that leaves the government with an extra $3-billion that can be used to lower the size of the deficit, pay down debt if the government is in surplus or divert the money to new spending or tax cuts.
Prime Minister Stephen Harper’s majority government is approaching the final year of its mandate with a fixed election scheduled for October, 2015.
The economists raised their projection for annual inflation in 2014 to 2.1 per cent from 1.6 per cent. Bank of Montreal chief economist Douglas Porter noted that the change puts the economic consensus at odds with Bank of Canada Governor Stephen Poloz, who has been warning about lower inflation.
Mr. Porter also noted that economic growth over the coming decade is expected to be softer than it was over the past 10 years, largely due to changing demographics that will slow growth in the labour force.
“We’ll probably view 2 per cent [growth] as being a real good year over the next 10 years,” he said.
The private sector average released Monday forecasts real gross domestic product growth of 2.2 per cent in 2014, followed by 2.5 per cent in 2015, 2.5 per cent in 2016 and 2.3 per cent in 2017.
Nominal GDP, which includes inflation, is projected at 4.3 per cent in 2014, 4.3 per cent in 2015, 4.5 per cent in 2016 and 4.4 per cent in 2017.
The forecasts are broadly in line with the average private-sector forecast listed in the Feb. 11 budget, which was based on a survey taken in December, 2013.
The Feb. 11 federal budget projected a deficit of $16.6-billion in 2013-14. The official figure for that year will not be known until the Public Accounts are released in the fall. However, the Finance Department’s monthly tracking of the budget balance in the Fiscal Monitor report suggests Ottawa beat that target. The March, 2014, report said the deficit for the 2013-14 fiscal year was $12.1-billion.
The February budget forecast a deficit of $2.9-billion in 2014-15, a projected deficit that was entirely due to the $3-billion adjustment for risk.
The budget projected a surplus of $6.4-billion in 2015-16 and $8.1-billion in 2016-17.
Monday’s release does not translate the updated growth numbers into an updated projection of Ottawa’s bottom line. It does project that Canada’s unemployment rate will drop from 6.9 per cent this year to 6.6 per cent next year and 6.4 per cent in 2016.
Mr. Oliver, who criticized the government of Ontario during its recent provincial election for “lagging economically,” expressed hope that Liberal Premier Kathleen Wynne will tackle the deficit.
“The Premier will have to confront some tough fiscal decisions and we hope that her government will follow our lead toward a balanced budget in Ontario,” he said.