Private-sector economists are urging Finance Minister Jim Flaherty to be extremely cautious with his fall economic update, as they privately offer widely diverging views of where Canada's economy is heading.
For more than 90 minutes Monday, Mr. Flaherty and 14 private sector economists met behind closed doors for a discussion that was mainly focused on what they don't know - such as whether Washington will inject further stimulus into the U.S. economy or how the November midterm elections in the United States will play out.
Economists who were in the room said they were struck by the unusually wide range of opinion among them. While their exact projections remain private until Mr. Flaherty delivers his fall economic update in coming weeks, economists confirmed that the gap between the highest and lowest projections was more pronounced than in previous meetings.
"The reality is there a significant difference within the consensus. The high is very high and the low is very low," said CIBC World Markets economist Benjamin Tal, who placed himself at the low end. "So in this situation, what do you do when you don't know what to do? You just don't take chances. That was my advice."
Conference Board of Canada economist Glen Hodgson confirmed the wide discrepancy among economists. He said he recommended the government make use of "shock absorbers" to account for a range of possible outcomes for federal revenue.
"You can't just assume one scenario," he said. "Which means you probably [should]use a fairly muted growth scenario … for your revenue planning and you build reserves and shock absorbers right into the budget, because, if not, you could have a nasty surprise."
Inserting "prudence" into forecasts was a regular budgeting device used by Paul Martin when he was Liberal finance minister. Mr. Flaherty also made a similar move with the 2009 budget, when he publicly noted that he was taking a more pessimistic view about future growth than the average of private sector economists.
In his comments to reporters following the meeting, Mr. Flaherty did not mention the wide array of opinions in the room but spoke of how uncertain the forecasts are. He suggested his update will not require major changes from the projections outlined in the March, 2010, budget.
"I think we're on track on our budget assumptions with respect to the economy," Mr. Flaherty said. He repeated the Conservative government's plan to complete the current round of stimulus spending and then turn off the taps in the next budget, with a shift to erasing the deficit by about 2015.
He said the economy is clearly not booming, but neither is the picture as volatile as it was two years ago at the start of the recession.
"We are in a time of modest economic growth," Mr. Flaherty said.
In response to questions about Canada's housing market, he said Ottawa has no plan to intervene further with policy measures aimed at discouraging consumers from taking on dangerous levels of debt. He also said he has no plans to scrap a cut in corporate taxes that is to take effect next year.
National Bank Financial Inc. economist Stéfane Marion agreed that the state of the economy does not warrant a major change in plans at the federal level. "Canada is well-positioned to not need a second wave of stimulus," he said.
The 2010 federal budget, which used an average of private sector forecasts, projected real GDP growth of 2.6 per cent for 2010; 3.2 per cent for 2011; and 3 per cent for 2012.