Canada's Housing Bubble

Nov 02, 2011 Jason Fekete And Derek Abma Postmedia News

Canada's parliamentary budget officer is predicting slower economic growth and higher unemployment than the Harper government and says the country's books probably won't be balanced until 2016-17 at the earliest.

The assessment by Parliamentary Budget Officer Kevin Page came the same day Bank of Canada governor Mark Carney and Finance Minister Jim Flaherty appeared separately before a House of Commons committee to discuss their own weaker economic assumptions.

In a semi-annual report released Tuesday, the Office of the Parliamentary Budget Officer has substantially downgraded its economic and fiscal forecasts from earlier this year and offers a more conservative assessment of the Canadian economy than the Tory government.

The spending watchdog now expects real growth in gross domestic product to reach 2.2 per cent this year - down from a spring projection of 2.9 per cent - and only 1.5 per cent in 2012, significantly less than the 2.2 per cent originally envisioned.

Economic growth in 2013 is now expected to be 2.1 per cent, down slightly from 2.3 per cent predicted earlier this year, according to the PBO report, which is based on data received up to Oct. 12.

"The global economic outlook has deteriorated since PBO's June economic and fiscal outlook," the report says, noting the sovereign debt crisis in Europe, weaker commodity prices and sluggish U.S. economy.

"Taken together, these developments have led PBO to revise down the outlook for the Canadian economy relative to its June 2011 [report]."

The parliamentary budget officer's growth assessment compares with updated federal government projections - based on the average of more than a dozen private-sector economists - of 2.2 per cent this year, 2.1 per cent in 2012 and 2.5 per cent in 2013.

The slower-than-expected growth is likely to increase unemployment to eight per cent in 2012 and 2013 (compared to 7.4 per cent this year), the report notes. It will also generate smaller federal tax revenues and larger budget deficits - making it almost impossible for the government to meet its target of balancing the books by 2014-15, the report says.

In releasing Ottawa's updated economic forecast last week, Flaherty hinted the government may not be able to eliminate the deficit by 2014-15, instead promising to do it over the "medium term."

On a positive note for consumers, the PBO expects the Bank of Canada will maintain its key lending rate at one per cent through the third quarter of 2013 before gradually raising rates.

The office notes the government is reducing its structural deficit and that budgetary revenues will continue to grow faster than expenses in the coming years.

However, the PBO is still warning that the federal government is on shaky financial ground over the long term, partly due to an aging population, and will need to either increase taxes or chop spending.

At the same hour the PBO released its report on Tuesday, Carney appeared before the Commons finance committee to provide his observations of the Canadian economy.

He told MPs the global economy "has slowed markedly" and market volatility has increased amid ongoing uncertainty over Europe's debt crisis.

The Bank of Canada governor said he supports Greek Prime Minster George Papandreou's decision to hold a referendum on a proposed bailout package from its European partners meant to help that country maintain financial stability.

But his comments came as stock markets around the globe plunged largely on the uncertainty Papandreou's announcement brings on whether a recent deal reached by European leaders can adequately deal with out-of-control debt among some members of the European Monetary Union.

Politicians of different political stripes on the finance committee tried to prompt Carney into taking a definitive position on whether the Canadian government should provide more stimulus spending to support the country's economy.

But Carney said fiscal decisions are for the finance minister, "so we'll defer to him on those and not provide advice."