Canada’s recent economic rough patch has prompted chatter about the fiscal plans of the federal government, not just the monetary policy of the country’s central bank.
Statistics Canada reported Friday that the economy grew just 0.1 per cent in the fourth quarter of 2018. Growth was 1.8 per cent for the year, a decrease from the 3 per cent seen in 2017.
The news had some economists saying that the Bank of Canada may have been handed a reason to lay off on discussion of further interest-rate increases, if it so chooses.
“On the basis of this latest set of woeful GDP figures, the Bank of Canada must surely be considering following the Fed and abandoning any talk of further interest rate hikes at next week’s policy meeting,” said a note from Capital Economics.
However, the weak economic growth also caused some economists to eye the federal government’s fiscal plans ahead of the March 19 budget, which will arrive just months away from the next Canada-wide election in October.
I wouldn’t be surprised to see the emphasis upon quick shots that get stimulus immediately out the door, like more cash infusions for households
Derek Holt, head of capital markets economics at Scotiabank
“Barring pre-election handouts from Ottawa, expect a further moderation of consumption this year more so considering the still-low savings rate and an expected moderation in employment creation,” wrote National Bank of Canada senior economist Krishen Rangasamy.
Recent figures from the Department of Finance Canada have suggested that Ottawa could have some room to manoeuvre with its budget. There was an approximately $2.5-billion surplus for December and a $324-million surplus from April to December, the figures showed.
The latest GDP figures could “provide cover” to the federal government to add some stimulus to its coming fiscal plan, according to Derek Holt, head of capital markets economics at Scotiabank.
“I wouldn’t be surprised to see the emphasis upon quick shots that get stimulus immediately out the door, like more cash infusions for households as one option,” wrote Holt.
“It might also raise pressure on Finance and the provinces to ease restrictions on housing demand which Finance Minister (Bill) Morneau has already hinted will be a focus in the upcoming budget.”
But there are employment figures for February still to come next week. And jobs numbers will be “the judge and jury for policymakers,” wrote Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce.
“For the Finance Minister Morneau, there were already temptations to use the fiscal room created by a lower than expected deficit for 2018 to announce more generous child tax credits or other spending initiatives in what is an election year,” Shenfeld said Friday.
“Only if the jobs data weaken could he add the need for further stimulus to that list.”
There has already been some buzz around what sort of measures, if any, the federal Liberal government could have up its sleeve on March 19.
“While we’re not in the game of predicting budget measures, the recent chatter has centred on areas such as expanded universal pharmacare, skills training and measures to help housing affordability,” wrote Robert Kavcic, senior economist at BMO Capital Markets, on Feb. 22.
“On the latter, there has been some hints that Ottawa could bring back 30-year amortizations for first-time buyers, but the details at this point are minimal.”