Ottawa expects lower growth over next 5 years
OTTAWA — Finance Minister Bill Morneau expects economic growth to lag below the Bank of Canada's two per cent target over the next five years as the global economy weakens and the Canadian oil industry sputters.
In his fall economic update on Monday, Morneau said Canadian GDP growth is expected to grow at an average 1.8 per cent between 2019 and 2024.
The projection is within the range considered healthy by economists, but still points to ongoing tensions over international trade that could send the global economy into a period of tepid growth.
Meanwhile, the Liberal deficit is expected to balloon next year, due largely to an accounting practice that lowers the value of government pensions when interest rates fall.
Morneau projects a $26.6 billion deficit in 2019-20, up from a pre-election estimate of $19.8 billion.
The rise comes amid a number of new spending promises made during the election, as well as a change in the value of government pension plans that
will cost Ottawa $4.9 billion in the next fiscal year.
When Finance Canada lowers its internal interest rates, the liabilities tied to government pension plans increase, which counts against the government books.
A promised tax cut for middle-income earners will also cost the government $700 million in foregone revenues, the fiscal update said.
The deficit is now expected to peak at $28.1 billion in 2020, falling to $11.6 billion in 2025. The federal debt-to-GDP ratio, often cited as a crucial fiscal anchor by Morneau, increased slightly to 31 per cent, up from 30.8 per cent in 2018.
The spending increase comes as the lacklustre Canadian oil industry continues to weigh on overall GDP growth.
“When producers face challenges — particularly those in Alberta and Saskatchewan —
Canada's entire economy feels the effect,” the update said.
Oil and gas production, including related support industries, contributed five per cent of total Canadian GDP and 14 per cent of exports in 2018, public data show.
The Finance department also cited ongoing worries over trade disputes between the U.S. and China as a central reason for slower economic growth.