The federal government’s projections of its massive budget deficit may, in fact, be too low, according to the Bank of Canada.
Canada’s historic budget deficit for this year, projected to exceed $340 billion, may be even higher if the more pessimistic central bank growth forecast turns out to be accurate. The Bank of Canada projects that Canada’s gross domestic product (GDP) will fall 7.8% in 2020. That compares with an estimated 6.8% contraction used by Ottawa in its fiscal outlook.
The additional decline in economic activity would add another $8 billion to the deficit. Ottawa’s fiscal outlook is based on forecasts in May from private-sector economists. The more pessimistic forecast from the Bank of Canada comes as COVID-19 infections climb in the United States, Canada’s largest trading partner, making economic recovery more uncertain.
Canada’s budget deficit is expected to reach $343.2 billion in the 2020-2021 fiscal year, the largest shortfall since World War Two. While an $8-billion increase in the shortfall would be proportionally small, slower-than-expected growth could encourage Ottawa to spend more on stimulus after already rolling out $212 billion in direct aid to Canadians and businesses.
The Prime Minister’s Office and the office of the federal Finance Minister have not responded to the Bank of Canada’s economic and fiscal forecasts.
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