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Hard to face weakened fiscal position and deepening deficits amid shrinking economy: Budget cuts



OTTAWA – Prime Minister Justin Trudeau's deficit is likely to deepen in the coming years as a result of slowing economic growth, further weakening the fiscal position of the Liberal as it seeks to defeat the incoming minority government.

On Thursday, the Parliamentary Budget Office said it expects the budget deficit to average $ 1.6 billion over the next five years, amid growing fears over international trade disputes and uncertain Canadian exports likely to reduce Canada. economy. The increase does not include Labour's promises made during the campaign, which will additionally make spending upward.

Higher deficits will put additional fiscal pressure on Trudeau's government as it seeks to secure NDP support, which has called for higher costs for pharmacists and social housing, among other programs.

The weak economic outlook comes amid growing concern that the trade war between China and the US could spill over into the Canadian economy, affecting exports and causing business investment to dry up. The Alberta government's lower spending on public administration has also cited PE as the reason for the decline.

Many economists have called on Trudeau's government to step up fiscal spending in recent years, saying the effect of the additional stimulus will be off at a time when the economy is near capacity.

GDP growth is now expected to reach 1.7% in 2020, 0.3% lower than the previous CBO estimate in June 2019. GDP in 2021 is projected at 1.6%, 0.2% below the previous projection. The deficit, meanwhile, is now expected to reach $ 21.1 billion in 2020, reaching $ 23.3 billion in 2021.

Trudeau left the other parties abruptly during the 2015 election campaign, promising to make an initial deficit of $ 10 billion as a way to boost the economy and then return to equilibrium by 2019. He later abandoned those plans, and ran higher than unexpected deficits even as the Canadian economy grew by nearly three percent, surpassing all other G7 countries. The deficit was $ 14 billion in fiscal 2019.

Labor has doubled its spending trajectory in the last election, promising to further increase the cost of tax credits for families, infrastructure and a pharmacy plan. At the moment, Ottawa is not planning to return to equilibrium, rather than linking its fiscal prudence with the debt-to-GDP ratio, which has continued to move downward, largely due to gradual economic growth.

But the CBO in its report said that numerous promises of Trudeau's campaign will also spur spending above current estimates, "reducing the likelihood of budget balances by 2024-25, as well as reducing the likelihood that the debt-to-GDP ratio will decline." it will be lower than 30.9% in that year. "

Even so, it estimates that by 2025 there is a 70% chance that the federal debt-to-GDP ratio will be below its 2019 level of 30.9%.

Trade tensions between the United States and China intensified in September when US President Donald Trump imposed a 15% tariff on imports worth approximately $ 110 billion. In mid-December, an additional tariff will be imposed on imports affecting almost all Chinese goods. The Chinese government is determined to respond with its own tariffs that would be earmarked for nearly $ 100 billion in US imports and could create additional tensions.

Concerns about the state of the global economy have been exacerbated after numerous central banks from the United States to Mexico to Egypt began lowering interest rates, citing global trade tensions. The Bank of Canada has remained more lenient and has maintained rates at its current rate of 1.75%, and JP expects the bank will continue to raise rates only in the second half of 2020, as the trading areas "collapse".


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