Ottawa will have less revenue than expected but should still be able to erase the deficit within three years, according to new forecasts for economic growth in Canada.
Finance Canada released the average growth forecasts of private sector economists Monday. The numbers forecast real GDP growth of 2.1 per cent in 2012, unchanged from the average of a survey taken in March. However the October 2012 survey forecasts 2.0 per cent real GDP growth in 2013, down from an earlier projection of 2.4 per cent. Economists noted that this is partly offset by slight upward revisions for growth in 2014, 2015 and 2016.
"Relatively speaking, Canada's doing quite well," said Finance Minister Jim Flaherty following a meeting with 11 private sector economists at Finance Canada's headquarters in Ottawa.
"There's a remarkable consensus among the private sector economists, which is encouraging," he said. "It's not all doom and gloom."
Earlier Monday, the Parliamentary Budget Officer released its own - more pessimistic - economic growth forecasts. The PBO is standing by its April projection of 1.9 per cent real GDP growth this year, and is forecasting 1.5 per cent – rather than 1.6 per cent – growth for 2013. Its projections for nominal GDP – which accounts for inflation and is a more useful guide for government revenues – are being downgraded more sharply.
The private sector economists are also making significant reductions in their forecasts for nominal GDP. For 2012, the October survey forecasts 3.4 per cent growth in nominal GDP, down from April's forecast of 4.6 per cent. They are also forecasting 4 per cent growth in nominal GDP for 2013, down from the 4.4 per cent forecasted in April.
Mr. Flaherty said this drop in expected nominal GDP growth is largely due to changes in the commodities market. He said this will affect government revenues and projections for future deficits, but that the government's plan to balance the books over "the medium term" remains on track.
The minister declined to be more specific as to whether his comment about the medium term meant that the government still expects to post a surplus in 2015-16, as projected in the March 2012 budget. The minister will use Monday's private sector forecast numbers to produce a fall economic update, which he said will be released in a few weeks.
In its report, the PBO says there is still a 60 per cent or better chance the federal government will post a surplus in 2015-16, which is the year the Conservative government estimated in the March budget that it will return to surplus.
"PBO is now projecting lower tax revenues, which are offset by lower spending on employment insurance benefits and public debt charges, resulting in projected budgetary balances that are in line with the April [forecast]," states the PBO's Economic and Fiscal Outlook Update.
Craig Wright, RBC's chief economist, told reporters following Monday's meeting with Mr. Flaherty that his submissions to Finance Canada assumed higher growth than the average. If the economy performs as RBC projects, Mr. Wright said Ottawa could erase the deficit a year earlier, in 2014-15.