The Parliamentary Budget Officer (PBO) is forecasting that the budget deficit of Canada’s federal government will rise to $46.5 billion as the economy stagnates.
In its latest economic and fiscal outlook, the PBO forecasts that higher interest rates will weigh on Canada’s economic growth and lead to an increase in deficit spending.
In particular, the budget officer expects that consumer spending will remain weak through the first half of 2024.
Faced with slower growth, Ottawa’s revenues are likely to decline even as its expenses rise. Consequently, the federal deficit is projected to reach $46.5 billion in the current 2023-24 fiscal year, up from an estimated $38.7 billion in the previous 2022-23 fiscal year.
The PBO also projects that Canada’s debt-to-GDP ratio will increase this fiscal year to 42.6%.
However, the budget officer forecasts that the deficit will decline to $8.2 billion in the 2028-29 fiscal year, and that the debt-to-GDP ratio will fall to 37.8% by then as well.
The Parliamentary Budget Officer’s projections assume no further interest rate increases and that inflation will decline to the Bank of Canada’s 2% annualized target by the end of 2024.
The Bank of Canada is set to make its next interest rate decision on Oct. 25. The country’s inflation rate currently stands at 4%.
