The Parliamentary Budget Officer said the fiscal and economic fallout of COVID-19 remains extremely uncertain, but could lead to the weakest GDP figures in decades and a deficit of more than $112.7-billion.
Parliament’s spending watchdog released a report Friday that provides an illustrative example of what could happen based on a set of economic assumptions. The report cautions that the purpose is to provide a scenario and the report is not a forecast or an assessment of what is most likely to happen.
The report assumes that current social distancing measures remain in place through August, or for six months in total.
In this scenario, real GDP growth would decline by 2.5 per cent in the first quarter of 2020 and then again by 25 per cent in the second quarter, using annual rates. For the year as a whole, GDP would decline by 5.1 per cent, which the PBO says would be the weakest on record since 1962.
The PBO’s estimate of a $112.7-billion deficit in the fiscal year that starts April 1 does not include the measures announced this week following the passage of Bill C-13, the government’s emergency stimulus legislation. The PBO notes that the legislation contains “un-costed” measures.
The PBO’s estimates of GDP are generally in line with recent private sector forecasts. Also, a report this week by RBC Economics said that, including the new measures in Bill C-13, the deficit will be closer to $110-billion, compared with the $28-billion shortfall projected by the government in December.
“While additional fiscal measures will likely be required to support the economy in the coming months, the government’s balance sheet prior to these shocks was healthy,” the PBO report states. “However, even after additional support measures are provided, fiscal stimulus measures may be required to ensure that the economy reaches lift-off speed especially if consumer and business behaviour does not quickly revert back to ‘normal’ conditions.”
The report notes that in light of historically low interest rates, the government “could undertake additional significant borrowing” if required.
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