Canada eyes major spending and policy changes to boost growth amid widening trade and fiscal gaps
Canada’s federal deficit is poised to reach unprecedented levels, with Ottawa’s fiscal shortfall expected to hit $100bn this year—more than double previous government forecasts—according to Stefane Marion, chief economist at National Bank of Canada, as reported by Bloomberg.
Marion describes Prime Minister Mark Carney’s upcoming fiscal update as “the most consequential budget in a generation,” highlighting the government’s intention to push the deficit to about three per cent of gross domestic product in pursuit of major projects and investment attraction.
Marion’s assessment that Canada’s deficits remain in a relatively favourable position compared to other G7 nations offers some reassurance.
“We do have some fiscal room when you compare Canada to the rest to the world,” Marion said, but he cautions, “We should not waste it”.
He is among a growing number of economists and business leaders optimistic about the government’s plans to invest in infrastructure, defence, and housing, all aimed at boosting Canada’s lagging productivity.
Investment in Canada has stagnated since 2015, a stark contrast to the United States, where business spending has flourished.
Marion attributes this partly to limited capital spending in the energy sector, which has been challenged by lower oil prices and increasing regulatory burdens.
He views Carney’s plan to review federal regulations as a positive step toward unlocking Canada’s potential as an energy and industrial superpower, stating, “We’ve been stranding these assets by not knowing whether or not we could exploit them down the road”.
Marion also points to Canada’s clean electricity sector as a significant opportunity for foreign investment.
On the monetary policy front, Marion anticipates the Bank of Canada will cut its policy rate by a quarter-point to 2.25 per cent at its next meeting, but expects a pause as policymakers digest the details of the federal budget. “It will be a stimulative budget,” Marion said.
Meanwhile, Canada’s merchandise trade deficit widened in August to $6.32bn, its second highest on record, as exports to both the United States and other countries declined, according to Statistics Canada and reported by Reuters.
Total exports dropped by three per cent from July, while imports increased by 0.9 per cent.
Exports to the US fell by 3.4 per cent, with unwrought gold, lumber, machinery, and equipment leading the decline.
Imports from the US were also down 1.4 per cent, narrowing the trade surplus with the US to $6.43bn.
The trade deficit with countries other than the US reached a record US$12.8bn, as imports from these countries rose to a new high.
The Wall Street Journal notes that the largest decline in exports was seen in metals and minerals, particularly unwrought gold, and that lumber exports dropped to their lowest level since May 2020 following increases in US antidumping and countervailing duty rates.
