Canada | Inflation will fall to 2% by the end of the year, predicts PBO

(Ottawa) The Parliamentary Budget Officer (PBO) predicts that inflation will return to the Bank of Canada’s 2% target by the end of the year and that the federal deficit will increase amid an economic slowdown .

The fiscal watchdog’s latest economic and financial outlook comes as the federal government prepares to deliver its spring budget and Canadians anxiously await the central bank to begin lowering interest rates.

The report predicts that the first rate cut will come in April, a little earlier than expected by financial markets.

The Bank of Canada is due to make an interest rate announcement this Wednesday and is widely expected to keep its key rate at 5%.

High interest rates have weighed on the Canadian economy as consumers cut spending and businesses see sales slow.

Statistics Canada reported last week that the economy grew 1% annually in the fourth quarter. This growth was largely driven by an increase in exports, supported by strong spending trends in the United States.

The PBO says the economy is expected to grow a modest 0.8% this year, just shy of the Bank of Canada’s forecast of 1%.

Weak economic growth is also expected to weigh on government coffers.

The PBO further projects that the federal deficit will increase to $46.8 billion in the current fiscal year, provided that no new measures are introduced and existing temporary measures expire as scheduled.

This would exceed the government’s forecast for the fall, which was 40 billion.

The report warns that if the Bank of Canada keeps interest rates higher than expected for longer than expected, the deficit could be even larger and the economy weaker.

Ottawa facing significant budgetary pressures

Canada’s Finance Minister, Chrystia Freeland, announced Monday that she will present the budget, which will take stock of the state of federal finances, on April 16.

The budget will likely be a difficult exercise for the Liberals.

The government faces significant budgetary pressures which it will need to balance with the appetite for more action on housing.

The budget is also an opportunity for the Liberals to try to win back Canadians who supported the Conservatives.

The Minister of Finance recently reiterated her commitment to the new fiscal safeguards introduced in the fall to limit deficits.

“For our government, it is very, very important to invest in Canada and Canadians…and to do so in a fiscally responsible way,” said Freeland to journalists before the tabling of the drug insurance law last week.

“In the fall economic statement, we defined certain budgetary directions, and we will respect them. »

The federal government promised in the fall that the deficit for the current fiscal year would not exceed its forecast of 40 billion.

According to the Department of Finance, the federal deficit for the current fiscal year stood at $23.6 billion at the end of December.

The government is also seeking to reduce the debt-to-GDP ratio in 2024-2025 compared to projections in the fall economic statement, and to keep deficits below 1% of GDP from 2026-2027.


Leave a Comment