The global economic outlook is looking even bleaker than before, a new report from the Parliamentary Budget Officer says, but Canada should be able to weather the storm.
The Economic and Fiscal Outlook for April 2016, released by the PBO early Tuesday, incorporates data available up to and including April 12.
“Since the Parliamentary Budget Officer’s November 2015 report, the outlook for the global economy has deteriorated further,” Parliamentary Budget Officer Jean-Denis Fréchette notes in a summary of the document. “Expectations of the future path of prices for key commodities have also been revised lower.”
In spite of that, the PBO — which is responsible for providing non-partisan financial analysis for Parliament — notes the measures unveiled in the government’s inaugural budget last month and “accommodative monetary policy” from the Bank of Canada will help keep Canada afloat through the worst of the next few years.
“We continue to anticipate a rebalancing in the Canadian economy,” Tuesday’s report says.
“The composition of real (gross domestic product) is expected to shift away from consumer spending and housing toward exports and business investment.”
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The PBO projects that growth in GDP will rebound to 1.8 per cent in 2016 and then rise to 2.5 per cent in 2017. Growth is then expected to slow a bit over 2018 to 2020.
While budgetary measures may be helpful for the economy over the next five years, the PBO wasn’t thrilled with the document itself, which was tabled by Finance Minister Bill Morneau on March 22.
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Two weeks ago, Fréchette released an assessment of the budget that blasted the government for failing to provide all the necessary information for his office, or for parliamentarians.
He also noted the government had been far too pessimistic when it came to nominal gross domestic product, the broadest single measure of the tax base. Tuesday’s report acknowledged that nominal GDP is indeed expected to be almost $20 billion lower each year than the PBO had estimated last November. But the Liberals built in a ‘cushion’ of close to $40 billion.
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Smaller deficits
The other major headline out of the PBO report is the size of the projected deficits that Ottawa will be seeing over the next five years. According to Fréchette, they are likely going to be smaller than anticipated.
The Liberals, who are marking six months since their election victory on Tuesday, ran on an election promise to run deficits of no more than $10 billion a year over the next three years. They then broke that promise in the budget, settling on deficit spending of $29.4 billion for the coming fiscal year, then $29 billion in 2017-2018.
The PBO’s new projections are much rosier, with Fréchette saying that Canada will be facing deficits that are, on average, $4.5 billion lower than what the government is predicting between now and 2021.
“We expect a budgetary deficit of $20.5 billion in 2016-17,” the report’s summary notes. “The deficit is then projected to rise to $24.2 billion in 2017-18 … We project the deficit to decline to $12.4 billion over 2018-19 to 2020-21.”
Read the full PBO report here.
Fréchette is expected to appear before the House of Commons Standing Committee on Finance on Tuesday to discuss the newly released report and projections.
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