Canadian Manufacturing

Hobbled economy casts shadow over Trudeau’s ‘sunny ways’ budget

A few facts and figures on Canada's economic situation could dig into the Liberals' election promises

OTTAWA—As the federal government constructs its upcoming 2016-17 budget, it must consider Canada’s hobbled economy. Here are a few facts and figures on the country’s economic situation:

Weak economic growth—The economy fell into the technical definition of a recession in the first half of 2015 when its real gross domestic product contracted for two straight quarters. The economy rebounded in the third quarter, but experts believe it slowed again in the final three months of 2015. Last month, the Bank of Canada forecast only modest GDP growth for 2016 of 1.4 per cent.

Low oil prices—The price of West Texas Intermediate (WTI) oil remained below US$30 per barrel on Tuesday, well below the US$54 forecast in the federal government’s fall fiscal update. Experts say the low price of oil is a net negative for the Canadian economy, which exports a lot of crude. The weak prices, which plunged after hitting a mid-2014 high of US$107 per barrel, also carve billions in revenue from federal and provincial coffers. Oil-rich provinces like Alberta, Saskatchewan and Newfoundland and Labrador have been hit hardest.

The federal budgetary balance—In November, the new Liberal government said the declining economic situation forced them to lower the federal fiscal baseline by about $6 billion per year than the forecasts contained in the Conservatives’ April budget. Since that fall update, oil prices have slid further and the global economic outlook has dimmed, which has applied more pressure on Ottawa’s bottom line. Prime Minister Justin Trudeau, however, has acknowledged the Liberals will no longer be able to live up to their vow to cap the 2016-17 shortfall at $10 billion.

Debt-to-GDP ratio—The Liberal government has pledged to lower the country’s debt-to-GDP ratio throughout its mandate. The ratio represents a government’s capacity to pay back debt. Experts say the Liberals’ “fiscal anchor” of decresing debt-to-GDP is a more flexible target than balancing the budget. They say Ottawa could run a deficit of about $25 billion and still push the ratio down. Last week, Prime Minister Justin Trudeau shied away from the party’s other fiscal anchor to balance the federal books before the end of his government’s four-year mandate.

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