Trudeau’s Finance Chief Is Quickly Reworking His Budget Forecasts

(Bloomberg) -- Officials in Canada’s finance department are reworking budget forecasts to reflect a quickly deteriorating economic outlook with less than three weeks to go before Finance Minister Bill Morneau delivers his fiscal plan.

Private-sector economists, whose forecasts are used as the basis for the finance department’s projections, are being asked to submit updated numbers by Friday, according to people familiar with the situation who spoke on condition they not be identified.

The finance department bases its growth and revenue forecasts on surveys of economists from Canadian banks and other institutions. The revised numbers will show a much worse fiscal picture than the one Morneau would have envisioned only a few weeks ago.

Economists have cut 2020 growth forecasts closer to 0.5%, from about 1.5% earlier, as the coronavirus continues to spread, routing global equity markets and as crude oil prices plummet.

A 1 percentage point reduction in growth would knock C$5 billion ($3.69 billion) off the government’s bottom line every year, according to the finance department’s own sensitivity analysis.

That means the C$28 billion deficit the government previously projected for this year would be closer to C$33 billion, even before any new program spending promised by Prime Minister Justin Trudeau during last fall’s election campaign, or any new stimulus measures. The 2021 gap would be C$27 billion, versus C$22 billion projected before.

The government will release its new fiscal plan on March 30, Morneau said Wednesday, hours after Trudeau unveiled C$1.1 billion in new financial measures to help mitigate the effects of the widening coronavirus outbreak in Canada.

But that may not be enough. The government should roll out a fiscal package equivalent to 1% of GDP, or just over C$20 billion, in order to prevent the Canadian economy from going into recession, Jean-Francois Perrault, chief economist at Scotiabank, said in a note Wednesday.

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net

To contact the editors responsible for this story: Theophilos Argitis at targitis@bloomberg.net, Chris Fournier

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