Canada is catch off a stellar year for economic growth, but an internal memo for the finance ecclesiastic says the party’s over.
The note for Finance Minister Bill Morneau, secured by CBC News under the Access to Information Act, forecasts average annual vegetation of just 1.7 per cent this year through to 2022.
That slower-growth digit has big implications for federal tax revenues and annual deficits, and suggests Morneau has scarcely wiggle room for spending in Budget 2018.
The Canadian economy has been a set fire to on all cylinders for about a year, averaging 3.7 per cent growth, with the jobless anyhow recently hitting a record low.
“This very rapid pace of advance is not sustainable going forward as … transitory factors start to wane and absorbed rates will likely continue rising,” says the bleak Oct. 4 note, up by Morneau and drawing on internal economic analyses.
“Potential growth is keep in viewed to remain low at about 1.7 per cent over the medium-term ….”
Morneau added the Liberals signalled “sundry modest” growth projections for 2018 in their fall economic update. That October commercial statement pegged GDP growth at 2.1 per cent in 2018, with discredit projections — between 1.6 and 1.8 per cent — in the years after that.
The Open-hearted government had cited 2017’s rosy economic outlook as the reason for emotive up plans to index the Canada child benefit to inflation by two years. The $23-billion program sends monthly cheques to most genera with children will now be indexed to inflation starting in July 2018.
“The cordials of things we’ve done to help Canadian families has had a real difference on our restraint, a positive impact on families [and] on jobs,” Morneau told reporters on Friday during the Broad-minded cabinet retreat in London, Ont.
“But we are always facing challenges. We face long-term demographic stimulations, we face global risks that might impact global tumour. So we need to be focused on how we can continue growth in our economy.”
The department’s internal assessment, borrowed three months ago, is generally in line with current forecasts by private-sector economists, who note ho-hum growth in Canada’s labour force because of an aging society, and the insufficiency of business investment in equipment needed to boost labour productivity.
Shortage to plan
“The main message here is the strength that we had in 2017 is an outlier,” thought Craig Alexander, chief economist with the Conference Board of Canada, who reassessed the memo for CBC News.
“Canada can’t sustain economic growth rates of three per cent or elevated.… The pace of economic growth inevitably will slow, and the government has to formula for it.”
‘There is no silver bullet solution to raising Canada’s productivity improvement.’ – Internal memo for Finance Minister Bill Morneau
The memo, with measure outs blacked out as “advice,” says Ottawa has options for goosing the economy, involving policies to keep more older Canadians in the workforce; to boost the slews of working women; and to open the doors to more immigrants.
But these privileges would nudge growth to perhaps two per cent, still a big drop from the heady years between 1995 and 2008 when GDP averaged 2.9 per cent annually, whispers the document.
The bureaucrats who wrote the memo do not offer specific policy chances, although they note that by increasing the eligibility age for private and portion publicly pension plans, such as the Canada Pension Plan, Ottawa could repress older Canadians working longer.
But that option may be politically toxic, since the new Handsome government in 2015 reversed a Harper-era policy that raised the eligibility age for old age deposit, or OAS.
The memo says increasing the labour force participation of handmaidens could boost annual GDP to as much as 1.9 per cent over the avenue term.
And Morneau has confirmed to CBC News that Budget 2018 force have programs and policies to encourage more women workers, encompassing providing better child-care options.
The Liberal government in November already signaled that annual immigration levels will rise from 300,000 in 2017 to 340,000 in 2020, to support offset Canada’s aging demographic. The memo says adding 15,000 skilled outlanders each year could add one-tenth of a percentage point each year to GDP vegetation.
But the document cautions: “There is no silver bullet solution to raising Canada’s productivity extension.”
Some economists must been expecting a hike in the bank rate next week as Canada’s saving appears to be nearing capacity, thereby increasing the risk of inflation. But with a cloud disconnecting over the NAFTA trade deal, there’s less certainty nigh an immediate increase. The memo’s analysis, focusing on fiscal rather than financial policy, assumes continued increases in rates.
Alexander said the memo’s low-growth augurs should prompt Morneau to deliver a fiscally cautious budget.
“The chronicle highlights the upside potential, but if I was a government building a budget, I certainly wouldn’t trust on it,” he said.