Two federal departments released four sets of separate reports today that depict Canada’s economy as very different.
The Department of Finance’s fiscal update said the economy “remains vulnerable to significant shocks” and said there is “sufficient fiscal capacity” to support ongoing economic growth. The department also found that there is “a serious risk” of rising interest rates in the medium term.
The Department of Finance’s update said the economy “remains vulnerable to significant shocks” and said there is “sufficient fiscal capacity” to support ongoing economic growth. The department also found that there is “a serious risk” of rising interest rates in the medium term. The Department of Finance report showed how manufacturing is booming, at least until Canada actually imports goods from its neighbour to the south.
The Department of Finance’s report showed how manufacturing is booming, at least until Canada actually imports goods from its neighbour to the south. The Department of Treasury Board’s report was more cautious. It estimates the economy will expand by 1.1 percent in 2019 and 1.6 percent in 2020 — considerably less than in the years prior to the U.S. recession. Also, the report indicated that the economy’s capacity constraints will translate into a rising deficit. Treasury Board said that the federal government’s fiscal headroom had declined since 2010 and that the 2019 federal budget set aside only 20 percent of the necessary surplus “if policy surprises — such as an unexpected fall in oil prices or strong growth in consumer debt — occur.”
The two departments’ reports also appeared to paint a largely rosy picture of their respective industries. The Department of Finance estimates that the total value of Canadian exports will rise by 5.2 percent this year and 6.8 percent in 2019. That forecast matches the projection for the financial sector, according to the National Bank of Canada. It seems like the Canadian banking sector is in much better shape today than it was five years ago. However, the lender said that if oil prices fall below US$40 a barrel, the sector could face problems. It said commodity-based industries will continue to be the largest risk to the economy, and warned that several Canadian industries could have a lower long-term performance than the Department of Finance expected in its report.
In its fiscal update, the Department of Finance also projected a $1.2 billion surplus in 2019-20 and a $3.4 billion surplus in 2020-21, at the same time it increased its borrowing plan to support the economy. The government will spend C$7.6 billion more this year on infrastructure spending. A year earlier, the government had projected a surplus of $5.7 billion for 2019-20 and C$5.8 billion for 2020-21.
The Department of Foreign Affairs and International Trade, meanwhile, had an upbeat outlook for both the American and Canadian economies. Canada’s trade surplus with the United States was estimated to rise to C$7.7 billion this year, increasing to C$8.3 billion in 2020. A balanced budget is projected for 2019-20 and 2020-21, when the gap will drop to a still-healthy C$11.4 billion.
The Department of Foreign Affairs had a slightly more dark view of the global economy. Canada’s deficit has been consistently smaller than expected, it said, but it expects the deficit to grow to C$8.2 billion by 2021, and C$9.7 billion in 2023-24. Those numbers are in line with the International Monetary Fund’s prediction of Canadian deficits of C$8.2 billion in 2019-20 and C$9.7 billion in 2020-21.
The department also released economic forecasts for the industries of agriculture, manufacturing, oil and gas, and financial services. The estimates were all well below the estimates issued in the March budget. Canada’s top industries showed muted growth in the next few years. Agriculture was the most bright spot, and it was the only sector to show growth over past year. The good news for oil-and-gas companies is that the report was delayed, and that the sector’s decline is over and largely behind them.
Read the full report from the Canadian government here.