Eco­nomic con­cerns fol­low Morneau tour

The Guardian (Charlottetown) - - BUSINESS - THE CANA­DIAN PRESS

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.

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