Gordon Isfeld | Oct 29, 2012
OTTAWA — If there is a consensus on the direction of Canada’s economy it is this: Growth will initially slow as government revenues are pinched by lower commodity prices, but then pick up enough momentum to balance the budget as planned.
“The good news is that economic growth in Canada continues to be positive, if modest, and among the strongest” in the Group of Seven industrialized nations, Finance Minister Jim Flaherty said Monday after meeting with private-sector economists in Ottawa.
“What’s more,” he said, the country will “continue to see economic growth going forward,” Mr. Flaherty told reporters, ahead of his fall economic update, expected in a few weeks.
However, he added the revised growth forecast “underlines the renewed weakness we have seen in the global economy, especially in Europe and the United States — our two largest trading partners.”
“Clearly, Canada is not immune to these global pressures,” he said. “In particular, Canada has been affected by volatile and lower commodity prices, which are dampening government revenue growth.”
Still, Mr. Flaherty said there are “some bright lights in the economy, like the lumber sector, like the auto sector, the financial sector.”
“It’s not all doom and gloom. In fact, the mood is steady as she goes, stay the course.”
Mr. Flaherty said Ottawa will focus “on things we can control, specifically government spending, and remain committed to returning to balanced budgets in the medium term.”
Coming out of his meeting with 11 of the country’s top economists, the minister said the consensus was for 2.1% growth this year, unchanged from forecasts in March.
Next year, real gross domestic product will be weaker than expected, at 2.0%, down from 2.4% previously. The pace of growth will pick up in 2014, with an average estimate of 2.5%, up from the March forecast of 2.4%. The adjustment is the same for 2015.
Over the course of 2012-16, the average growth estimate by private-sector economists is unchanged at 2.3%.
Growth for forecasts for nominal GDP, which is not adjusted for inflation, was also cut. Instead of 4.6% growth this year, Monday’s forecasts now call for a 3.4% advance. In 2013, the outlook went from 4.4 to 4.0%. Estimates for 2014, meanwhile, rose to 4.7% from 4.6% and 2015 was adjusted to 4.7% from 4.4%.
Between 2012-16, the forecast for average nominal growth declined to 4.2% from 4.4%.
“I actually think the government is on target,” said TD Economics’ Craig Alexander, who was among the economists providing input to the revised outlook.
As well, the government appears on track to meet its fiscal 2015-16 target to balance the budget, although Mr. Flaherty could not be pinned down on the exact timing, saying only it would be “in the medium term.”
“We know the revenues are off. They’re not off dramatically, but they’re off a bit. And we’ll have to adjust for that. They’re not off enough that I need to worry about the fiscal track. The fiscal track is okay.”
Royal Bank of Canada chief economist Craig Wright told reporters that his outlook for growth was above the consensus and, as a result, he believes the government could eliminate its deficit as soon as 2014-15.
Also Monday, Canada’s budget watchdog said there is still a 60% chance the budget can be balanced by 2015-16.
But Kevin Page, the Parliamentary Budget Officer, was less optimistic about annual economic growth forecasts. He sees expansions of 1.9% this year — in line with his previous forecasts — but now expects 1.5% growth in 2013, down from his previous estimate of 1.6%, and 2.0% the following year, down from 2.2%.