Trudeau Fiscal Plan Doesn't Move the Needle for Bank of Canada

(Bloomberg) -- Canada’s monetary policy makers probably won’t be getting much of a boost from their fiscal counterparts this year.

Finance Minister Bill Morneau’s 2019-20 budget, unveiled Tuesday in Ottawa, includes new spending of C$4 billion ($3 billion) in the coming year, representing just 0.2 percent of gross domestic product and 1.2 percent of total program expenses. That’s unlikely to provide any significant jolt to the economy, and will probably leave the Bank of Canada’s expectations for government spending relatively unchanged.

“This budget isn’t really going to move the outlook for the Bank of Canada,” Brian DePratto, an economist at Toronto Dominion Bank, said in an interview during the media lockup before the budget documents were released. “The newly announced spending is marginally positive but it’s not likely to register on the macro scale and we’re unlikely to change our forecasts based on anything here.”

The outlook for Canada has been increasingly uncertain. The economy nearly stalled at the end of 2018, growing a meagre 0.4 percent in the fourth quarter on an annualized basis. There had been speculation Prime Minister Justin Trudeau, whose Liberals trail the opposition Conservatives in the latest opinion polls, might dip deeper into the red to spur growth in the run up to October election.

“ There’s no extra fiscal impulse here,” said Dominique Lapointe, an economist at Laurentien Bank in Montreal. “And the change probably won’t alter the Bank of Canada’s assessment of government spending and its effect on the economy.”

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