Fall’s economic outlook overshadowed by risks
European, U.S. woes will form backdrop to Flaherty’s statements Tuesday
OTTAWA— Finance Minister Jim Flaherty will deliver the annual fall economic update Tuesday against a backdrop of looming threats in the United States and Europe.
Flaherty, who missed his deficit-reduction target last year and is hampered by lower-than-expected economic growth, will try to put the best face possible on Canada’s outlook.
But the latest snapshot of the country’s fiscal and economic conditions — to be unveiled at a luncheon speech in Fredericton, N.B. — is clouded by continuing global uncertainties that could throw Flaherty’s plans into disarray. While Canada is outperforming many other advanced countries, the economy is still hostage to the risks of another recession should matters spin out of control in the United States or Europe. The fallout could blow in almost immediately if President Barack Obama is unable to work with Congress to avoid the potential economic shock wave Americans face on Jan. 1. That’s when the U.S. economy could be slammed by $600billion worth of spending reductions and expiring tax cuts. Flaherty and Prime Minister Stephen Harper have been urging Obama to do everything possible to steer clear of this fiscal cliff. And the Conservatives continue to urge European leaders to address the financial crisis that has pushed that continent into a punishing recession. “The world would be immensely helped if the Americans could deal with this immediate issue, and the Europeans could accelerate progress on their debt issues,” Harper said last week. These global uncertainties pose a serious budget-making dilemma for Flaherty, whose March 29 budget signalled a switch from years of multi-billion-dollar economic pump-priming to an era of budgetparing by the federal government. Analysts say withdrawal of economic stimulus by Ottawa and provincial governments is an added drag on the economy at a time when consumers are tapped out and Canada’s main export market — the United States — is still struggling to bounce back from the 2008-09 slump.
Private sector analysts are telling Flaherty the Canadian economy will perform significantly lower next year than was forecast in his federal budget in March. Economic growth will come in at a modest 2 per cent in 2013, they say: well below the 2.4 per cent prediction indicated in the 2012 budget.
For 2014, however, the analysts see the economy climbing back to 2.5 per cent growth, slightly higher than the 2.4 per cent forecast in the budget.
“So it’s not all doom and gloom,” Flaherty told the media on Oct. 29. “In fact, the mood is sort of steady as she goes, stay the course, stay on track to balance the budget in the medium term,” he said when asked to describe his closed-door chat with the economists.
Flaherty said Canada’s economy is stronger than other industrial nations but global conditions mean the outlook is still uncertain.
“In particular, Canada has been affected by lower commodity prices, which are dampening government revenue growth. This will have an impact on the fiscal outlook (set out in the March budget).”
Last year’s federal budget deficit was larger than expected, coming in $1.3 billion higher than forecast, Flaherty said in early October. The federal government reported its accumulated debt — the total of annual budget deficits — for 2011-12 reached a record $582 billion, up from $550 billion the previous year.