Skip to main content
The Globe and Mail
Support Quality Journalism
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); }

Minister of Finance Jim Flaherty announces the federal budget will be tabled June 6th, on Parliament Hill in Ottawa, Wednesday May 25, 2011.

Adrian Wyld/The Canadian Press/Adrian Wyld/The Canadian Press

Stephen Harper warned on the campaign trail that a "sea of troubles is lapping at our shores," yet the latest economic news suggests his government is underestimating the choppy waters ahead.

Finance Minister Jim Flaherty announced this week that he will be relying on the very same economic growth assumptions that underpinned his March, 2011, budget, which died before the election.

But that decision, which he announced Tuesday after consulting with private-sector economists, has some questioning whether Ottawa's June 6 budget is now relying on outdated and overly rosy growth numbers as it lays out a plan to erase the deficit.

Story continues below advertisement

A lot has happened in the economy since the March numbers were compiled, much of it negative. Growth in the United States is slower than expected; Japan was rocked by a devastating earthquake and tsunami; Europe's debt woes continue and Canada's latest growth numbers included worrying signs that consumers are closing their wallets.

Add to this a view among some economists that the average of private-sector forecasts on which Mr. Flaherty relies - that shows 2.8-per-cent growth in 2012 and 2.7-per-cent growth in 2013 - is papering over the negative hit Canada will take when the United States gets serious about its deficit to fend off nervous bond holders.

That's a main reason why Parliamentary Budget Officer Kevin Page released his own, independent forecast Wednesday that predicts slower growth in 2012 and 2013 - and Ottawa missing its target for erasing the deficit by 2015.

"We've got big issues in the United States," Mr. Page said. "We're watching the U.K. go through fiscal consolidation and it looks really painful. How is the U.S. going to escape its deficits … get it down to something meaningful, without having an impact on growth?"

The Bank of Canada's projection for growth in 2013 is actually lower than the PBO's, at 2.1 per cent. While 2013 is too far away for the central bank to be taking into account specific potential threats to the economy, the number is low enough that a major shock could send Canada tilting toward another downturn.

Derek Holt, an analyst at Scotia Capital in Toronto, agrees with Mr. Page that starting in late 2012 and into 2013 the biggest risk to Canada's economy could be whatever action, or inaction, Washington takes on the U.S. budget deficit.

"I can easily see a scenario where the minute [President Barack]Obama is probably re-elected, he comes with some sort of messaging about how 'this is going to hurt me more than it's going to hurt you, but we're going to be forced into austerity by the ratings agencies and the bond markets,' and he imposes a sharp contraction in 2013. That's got to be out there as a big, big question mark on the minds of a lot of central bankers, the Bank of Canada included.''

Story continues below advertisement

In April, Moody's ratings agency said the United States could lose its cherished triple-A rating if it doesn't come up with, and start implementing, a credible belt-tightening plan by 2013.

One of the private-sector economists who met with Mr. Flaherty this week, BMO's deputy chief economist Douglas Porter, says he's forecasting lower growth than the consensus forecast the government will be using in next week's budget.

"It looks a shade optimistic," he said of the average, though he still considers it a reasonable forecast for Ottawa to use.

Canadian Auto Workers economist Jim Stanford said recent events clearly show Ottawa's numbers are on the optimistic side. While there was strong first-quarter growth in this week's Statistics Canada data, he said those headlines masked the "very worrisome" drop in consumer spending that should lead Ottawa to reconsider its deficit-cutting plan.

"Spending cuts can be a self-defeating strategy to reduce deficits if economic growth is harmed in the process. This has been proven in spades in Greece," he said.

A spokesperson for Finance Canada notes that the average of the 15 private-sector economists includes growth estimates for 2013 that are "as low or lower" than the PBO and the Bank of Canada.

Story continues below advertisement

"This practice introduces an element of independence into the fiscal forecast, and has been supported by international organizations such as the IMF," Stephanie Rubec said.

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies