Economic concerns follow Morneau tour
No matter where Bill Morneau has taken his pre-budget road show, the economic storm clouds have gathered overhead.
The federal finance minister’s crosscountry tour to consult Canadians as he crafts his first budget has been overshadowed by the rapidly deteriorating economic situation. On Wednesday, the rookie minister’s circuit took him to Canada’s financial centre: downtown Toronto.
But on top of focusing on the new Liberal government’s plans to help middle income Canadians and spur economic growth, Morneau has also had to explain what he’s called “considerable headwinds.”
And he has acknowledged they have “no quick, easy fixes.”
Canada’s commodity-heavy economy is suffering from a toxic combination of stillfalling resources prices, mounting business and consumer pessimism and eroding fiscal conditions that are gnawing away at the government’s bottom line.
“The challenges that we face today are real,” Morneau told a business crowd earlier this week in Montreal.
In Toronto, he told reporters about the fiscal hurdles the Liberals found when they formed government. “The situation was more challenging than we expected,” Morneau said.
The obstacles are mostly tied to tumbling crude oil prices, a key determinant of government revenues and overall economic health.
Canada has been struggling since the late-2014 oil price shock, which forced the economy to contract over the first two quarters of 2015.
In late November, Morneau released a fall fiscal update that based its calculations on private-sector projections calling for oil to average US$54 a barrel in 2016. The prediction seemed optimistic at the time; oil was about US$40. This week, crude prices slid to near US$30 and some analysts have warned it could fall to US$20.
“All in all, the message is that the outlook is much worse than what it was back in November,” said National Bank senior economist Krishen Rangasamy. “I think this is a major, major impact.”
In a recent note to clients, Rangasamy pointed out that low oil prices have helped drive Canada’s terms of trade to their lowest mark in 12 years — and that’s before the most recent oil price slide is factored in.
Finance Minister Bill Morneau, right, shares a laugh with Stephen Toope, Director of the Munk School of Global Affairs, in Toronto on Wednesday.