Economists cut Canada’s growth projection, casting cloud on election pledges
theglobeandmail.com
Aug. 31, 2015
By Bill Curry
Economists are shaving their growth forecasts for 2015 ahead of a Statistics Canada report this week that is widely expected to confirm that Canada slipped into recession earlier this year.
A new survey of 16 economists conducted this month by Consensus Economics shows the economy is only expected to grow by 1.1 per cent this year, which is down from the two-per-cent growth the federal government expected when it released its April budget.
The London-based research firm concludes that the information available so far indicates the first half of the year began with a technical recession, which is defined as two consecutive quarters of negative economic growth.
Statistics Canada will release its Gross Domestic Product figures Tuesday for June, closing out the second quarter of the calendar year. The release is sure to have an immediate impact on the federal election campaign, where economic management is shaping up as a key point of debate between party leaders. It is also likely to impact the discussion over Ottawa’s bottom line as both the Conservatives and NDP are promising surpluses while the Liberals say they would fund major infrastructure spending through short-term deficits.
Economic growth has a direct impact on expectations for federal revenue and a slowing economy could place the Conservative government’s projected surplus of $1.4-billion at risk.
“I think everyone must realize that things were quite different in terms of expectations in April than they are today,” said Philip Hubbard, director of Consensus Economics. “We see expectations for GDP growth in Canada as having declined quite a bit over the last six or eight months.”
Mr. Hubbard said this drop in growth should force political parties to explain what that means for their forecasts as they make political promises during the campaign.
While there has been a considerable drop in the forecast for 2015, the consensus projection for economic growth in 2016 is still roughly in line with the assumptions in the budget.
The issue of whether Ottawa’s finances should be in deficit or surplus is now a major dividing line in the federal election campaign even though there is no agreement on the current state of the government’s bottom line.
The government ignored opposition requests to move up the fall fiscal update so that more current figures could be released before the campaign. As a result, it is not clear what parties will use as their baseline assumptions in their campaign platforms.
Conservative Leader Stephen Harper seized on a Finance Canada report Friday that showed Ottawa posted a $5-billion surplus over the first three months of the 2015-16 fiscal year, but even the department itself cautioned that such early figures should be treated with caution. About $2.1-billion of that early surplus was thanks to the government’s April 6 sale of its remaining shares in General Motors.
Party leaders have staked out clear positions in recent days when it comes to fiscal issues. Mr. Harper is standing by his budget plans and insists they will lead to a string of budget surpluses. NDP Leader Thomas Mulcair is promising an NDP government would balance the books starting in 2016-17.
Liberal Leader Justin Trudeau is taking a dramatically different approach, promising $60-billion in new infrastructure spending over 10 years. The Liberals said their plan involves running deficits of up to $10-billion for two years before balancing the books by 2019.
The Consensus Economics report provides a hint of what a fiscal update would show. While 16 economics firms contributed their growth projections and other data to the Aug. 10 survey, only six of the 16 provided fiscal projections.
That limited survey forecasts a deficit on average of $300-million for 2015-16. The survey forecasts a $400-million surplus for 2016-17, in contrast to the budget’s forecast of a $1.7-billion surplus.
Parliamentary Budget Officer Jean-Denis Frechette issued a report in July that forecasted a $1-billion deficit in 2015-16, due to the fact that the economy is not performing as expected in the budget.
For a government that brings in more than $270-billion a year in revenue, even the latest forecasts show a federal budget that is very close to balance at the moment.
“Ottawa will probably find a way to balance the budget if they really want to,” said BMO economist Robert Kavcic, who believes the PBO’s July forecast of a $1-billion deficit for this year is a reasonable starting point for political parties to use.
Toronto Dominion Bank economist Randall Bartlett agrees that the latest growth figures would translate into either a very small surplus or very small deficit, which he describes as economically “meaningless.” He cautions that it is too early in the fiscal year to rely on the Finance Canada report, which is the document the Conservatives are highlighting.
“Things are changing,” he said, noting the government’s fiscal year only started April 1. “We don’t even have GDP [data] for the first quarter of this fiscal year and we still have three quarters left and oil prices have dropped quite significantly. ...I really think it’s going to be too close to call at this point whether or not it’s going to be a deficit or a surplus.”
Economy by the numbers
Economic forecasts are regularly updated as new information comes in. The figures below show how expectations for growth and size of future surpluses and deficits have evolved in recent months.
Budget numbers (April 21)
Real GDP
2015 - 2 per cent
2016 - 2.2 per cent
Unemployment rate
2015 - 6.7 per cent
2016 - 6.6 per cent
Bottom line
2015-16 - $1.4-billion surplus
2016-17 - $1.7-billion surplus
Bank of Canada Monetary Policy Report (July 15)
Real GDP
2015 - 1.1 per cent
2016 - 2.3 per cent
Parliamentary Budget Officer (July 22)
Revised forecast based on Bank of Canada’s July numbers
2015-16 - $1-billion deficit
2016-17 - $600-million surplus
Consensus Economics survey of private sector forecasts (Aug. 10)
Real GDP
2015 - 1.1 per cent
2016 - 2.1 per cent
Unemployment rate
2015 - 6.8 per cent
2016 - 6.7 per cent
Bottom line
2015-16 - $300-million deficit
2016-17 - $400-million surplus
