Despite its strong recent performance, Canada’s economy is expected to “wane” in the coming years with growth below 2% in each of the next five years, according to an internal memo prepared for federal Finance Minister Bill Morneau.
CBC News acquired a copy of the memo under the Access to Information Act, and it forecasts average annual growth of just 1.7% from this year (2018) through to 2022. That slower-growth number has big implications for federal tax revenues and annual deficits, and suggests that Minister Morneau has little wiggle room for spending in his upcoming Budget 2018 expected to be released in February or March.
The Canadian economy has been on fire over the past year, averaging 3.7% growth – leading the G8 economies and with a jobless rate recently hitting a record low. However, the internal memo prepared with the Finance Department suggests the party is quickly coming to an end.
"This very rapid pace of growth is not sustainable going forward as … transitory factors start to wane and interest rates will likely continue rising," reads the bleak October 4, 2017 note that was ordered by Minister Morneau. "Potential growth is expected to remain low at about 1.7 per cent over the medium-term …."
The Finance Department's assessment, made three months ago, is generally in line with current forecasts by private-sector economists, who note slow growth in Canada's labour force because of an aging society, and the lack of businesses investment in equipment needed to boost labour productivity.
"The main message here is the strength that we had in 2017 is an outlier," wrote Craig Alexander, Chief Economist with the Conference Board of Canada, who reviewed the memo for CBC News. "Canada can't sustain economic growth rates of three per cent or higher.… The pace of economic growth inevitably will slow, and the government has to plan for it."
Bureaucrats who authored the memo do not offer specific policy options, although they note that by increasing the eligibility age for private and public pension plans, such as the Canada Pension Plan, Ottawa could keep older Canadians working longer. But that option may be politically unpopular, since the new Liberal government in 2015 reversed a Harper-era policy that raised the eligibility age for old age security.