Parliamentary Budget Officer (PBO) Yves Giroux said the Canadian economy is heading for a slowdown in the months ahead, but said talk of a recession is premature.."In the absence of further economic shocks, we believe the supply chain constraints are starting to resolve themselves… So we don’t see a recession, in good part because there’s already quite a bit of unmet demand and there’s still quite a bit of strength in the economy," he said..The PBO report, released yesterday, predicts “consumer spending downshifts," as residential investment continues to decline, and firms pull back on their inventory investment. Sluggish growth could drag into next year and real GDP numbers are expected to “remain weak” in 2023. .In order to slow inflation that's at a 40-year high, the Bank of Canada rapidly hiked interest rates since March. It's expected to do so again one more time before 2023, possibly by 75 basis points, leading to an interest rate of 4%..Giroux said by the end of 2024, inflation should be “solidly on track” to return to the Bank of Canada's 2% target, and Canada's interest rate should be able to fall to 2.5%..The PBO report found federal debt charges surpassed the $26.5 billion national defence budget. Debt charges were $31.2 billion and rising..“Public debt charges are projected to more than double, the report said, adding charges would be “reaching $47.6 billion in 2027 due to higher interest rates and the additional accumulation of federal debt.".Analysts also warned of a "pronounced" slowdown or contraction in the Canadian economy..“Given high levels of household indebtedness and elevated levels of house prices in Canada, households could pull back their spending to a greater extent and residential investment could decline more than anticipated,” the report said..The PBO confirmed Canada’s deficit is smaller than anticipated because of economic growth, but also due to inflation. The PBO estimates the government cashed in about $83 billion in additional revenue over a six-year period thanks to inflation..As a result, the PBO projects Canada's deficit will decline to $25.8 billion this current fiscal year and to decline further to $3.1 billion in 2027-2028, assuming there are no new measures. .But Franco Terrazzano, federal director of the Canadian Taxpayers Federation, said taxpayers should be "skeptical that this government can muster up that small shred of competence," to significantly reduce the deficit..Terrazzano said the smaller deficits will occur because Canadians are paying more in taxes. Additionally, taxpayers will be paying more to cover credit card interest, with interest charges costing Canadians $257 billion by the end of 2027..Additionally, the federal government's smaller deficits aren't occurring because they are being fiscally responsible, Terrazzano said.."With higher interest charges, the government is expected to continue to go over budget. Over five years, the government will spend $34 billion over budget," he said.."Call me skeptical, but the Trudeau government doesn't exactly have a good track record on deficits. Trudeau said he would initially run a few "modest" deficits and balance the budget in 2019. He missed that by $20 billion, even before the pandemic," he said.
