In a sign of the economy’s slowdown, the Parliamentary Budget Officer (PBO) now expects the federal deficit to reach $46.5 billion in 2023-2024, 16% higher than the Trudeau government’s earlier estimate.
Last March, Finance Minister Chrystia Freeland presented a budget in red ink projecting a deficit of $40.1 billion for the current year.
However, because of the economic slowdown and higher interest rates, Canada will sink deeper into debt, the PBO predicts.
Canadian debt will instead rise to $46.5 billion this year, or 1.6% of Canada’s GDP, according to its analysis published Friday.
The economic outlook is not encouraging according to the PBO, which does not expect a reduction in the Bank of Canada’s key rate before April 2024.
“Following a decline in real GDP in the second quarter, the Canadian economy is expected to stagnate in the second half of the year and growth will be weak in the first half of 2024. The unemployment rate is expected to reach 6%. It will remain high through the middle of next year and the first half of 2025,” said a parliamentary budget official. Yves Giroux assumed.
By doing so, the total federal debt will equal 42.6% of Canada’s GDP by the end of the 2023-2024 fiscal year. This is a significant increase of 11.4% from the last pre-pandemic budget year, 2019-2022.
“Under the status quo approach, the deficit should narrow over the medium term, reaching $8.2 billion in 2028-29,” Mr Giroux predicted.