Despite a global manufacturing slump and rising world trade tensions, Canada’s economy is “sound and growing” at a solid pace, according to an economic update delivered today by Finance Minister Bill Morneau.
The optimistic update points to low unemployment, growing wages and solid business profits as signs the national economy remains strong despite international challenges.
The update contains little in the way of new spending beyond what has been announced already.
But pension and benefits adjustments due to changing long-term interest rates, a new revenue-sharing deal on Hibernia and the recently passed tax cut, among other costs, are driving up the deficit.
The deficit is pegged to rise to $26.6 billion for the current year — up from $14 billion last year, and up from the $19.8 billion projected in the spring budget. It’s projected to fall to $11.6 billion by 2024-2025, with the size of the debt relative to the economy remaining flat for the next few years.
In a news conference on Parliament Hill, Morneau defended the plan to carry ongoing deficits, saying it’s necessary to ensure Canadians reap the benefits of a strong economy, including the residents of Alberta, Saskatchewan and Newfoundland and Labrador who are experiencing economic anxieties.
“We know that in order to ensure we continue on this positive trajectory, the strong economy that we’ve seen, the very strong employment numbers, that we should be continuing to invest at an appropriate level, and that’s what we are doing with this economic and fiscal update and with the campaign that we ran on,” he said.
The update shows an increase of nearly $10 billion in spending since the spring budget, including nearly $5 billion for employee pension and benefits adjustments, nearly $2 billion for a new revenue agreement on the Hibernia oil project in Newfoundland and Labrador and millions in compensation for dairy farmers harmed by new trade deals.
The government announced a $1.75-billion compensation package for dairy farmers in August, of which $345 million was to be paid out in the first year.
Some of the government’s spending is offset by $1.7 billion in increased tax revenue.
Oil-producing provinces feeling the pinch
Nearly 400,000 new jobs have been created so far in 2019 — Canada’s strongest rate of growth since 2007, according to the Department of Finance.
But not all parts of the country are experiencing the benefits of that growth; Canada’s oil-producing provinces are still feeling the pinch.
“Insufficient export pipeline infrastructure is reducing Canadian crude oil and natural gas prices, meaning lower profits for producers, reduced investment within the industry, fewer good, well-paying jobs for Canadian workers and lost revenues at all levels of government,” the report reads.
“These challenges are expected to persist until major projects, such as the Trans Mountain and LNG Canada (pipelines), are completed.”
The economic update also earmarks an extra $69 million for compensation payments to provinces for costs associated with asylum seekers entering the country outside of official border points, such as interim housing, social assistance and education.
The update also points to the positive impact of immigration on the country’s economy. Since 2015, immigrants have accounted for three-quarters of population growth, resulting in Canada’s population growing at its fastest pace in 20 years, and much faster than that of the other G7 economies.
Asked if the government is prepared to respond to a possible recession, Morneau said it is prepared “for all eventualities.”
“We already have the strongest balance sheet among G7 countries, we have the lowest level of debt as a function of our economy and what we’re projecting is that we’re going to be able to reduce that level of debt as a function of our economy, down to 29 per cent during the forecast horizon,” he said.
Some highlights of the economic update:
Economic growth: GDP growth after inflation projected to be 1.7 per cent this year and 1.6 per cent in 2020, second only to the U.S. in the G7 — no change from the spring budget. Outside experts are not predicting a recession.
Jobs: Despite a loss of 71,000 jobs in November, 2019 has recorded the highest number of jobs added this decade — nearly 400,000.
Deficit: Projected to be $26.6 billion (including $1.5 billion for “risk”) — a jump of $6.8 billion from the spring budget mostly due to pension and benefit adjustments, a new revenue agreement with Newfoundland and Labrador on Hibernia, compensation for dairy and canola farmers and the recently passed tax cut. Higher expenses were offset by $1.7 billion in higher tax revenues.
Debt: The debt-to-GDP ratio is projected to rise slightly to 31 per cent for 2019-20 and then fall again in 2021-22.