The swelling deficit
The federal Liberals now project Canada’s deficit will swell to $18.4-billion in the 2016-17 fiscal year amid a starkly weaker outlook for the economy. That doesn’t include their campaign pledges for stimulus spending.
The weakening economy
Ottawa’s new economic forecasts are those of private economists, who have been scrambling to cut their outlook. The government’s call is now for growth of 1.4 per cent this year, compared with the earlier projection of 2 per cent. Some economists, however, warn growth in gross domestic product this year could be 1 per cent or less.
The oil shock
Much has to do with the collapse of oil prices, of course, and the projections are bleaker there, too. The government has cut its projection for the U.S. benchmark to $40 a barrel (U.S.), above where it stands now but down from earlier predictions. Added to that are forecasts that unemployment will average an elevated 6.8 per cent this year.
What analysts say
“Since that base case has deteriorated by a total of $21-billion, keeping the planned stimulus in place would now mean a deficit of roughly $30-billion. That’s still only 1.5 per cent, hardly a blow-up. The only question is whether the modest dose of stimulus pledged in the campaign (roughly a half-percent of GDP) is enough to counter the drag on the economy from low commodity prices.” Avery Shenfeld, chief economist, CIBC World Markets.