Canada's Housing Bubble

Nov 03, 2011 Rebecca Lindell Global News

OTTAWA – Thousands of Canadians could lose their jobs as the economy slows amidst global economic turmoil, according to Canada’s parliamentary budget officer.

“We are talking about 100,000 additional unemployment people on average throughout the year 2012,” said Kevin Page.

Page made the comments to the House of Commons finance committee after releasing a semi-annual report, which forecasted slower economic growth and higher unemployment in the short term.

In the medium term, the report warned the government would be unlikely to meet its 2014-2015 deadline for balancing the budget. Instead, he predicted the deficit wouldn’t be wiped out until 2016-2017 at the earliest.

The root of the problem lies in growing concern over the Euro zone debt crisis, lower growth in the American economy, and a significant reduction in commodity prices, according to the report.

Still, Page said Canada had a “healthy plan” and was “in good shape” when it comes to balancing the budget by that second deadline.

“We do have a fiscal consolidation plan that gets us towards balance in the medium term,” he said, adding that with the uncertainty in the global economy, it is just hard to say when it will be achieved.

The major risk to budget balancing, according to Page, is the sovereign debt crisis.

“If the sovereign debt crisis unwinds unfavourably and we get risks of financial contagion... we assume we would see a significant recession in Europe, followed probably by a recession in the United States and if that large amount of the world’s economy goes into recession then, as we experienced in 2008/2009, it will mean a recession in Canada as well,” he told politicians.

“(That) would eliminate any chance of getting back to budget in the medium term.”

It’s not just the medium term politicians should be thinking about, Page said. He said politicians don’t have to move to balance the budget immediately, but should consider the long-term consequences of delay.

“Canada does not have a fiscal structure either at the federal level or the provincial/territorial levels that will stabilize the debt-to-GDP ratio over the long term,” Page said.

He said aging will slow economic growth and revenue growth, all while using more government resources such as pensions and health care.

Continually running deficits will constrain the choices of future decision-makers facing the challenges of an aging population, he warned.