Office of the Parliamentary Budget Officer
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Economic and Fiscal Outlook — March 2023

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Nora Nahornick; Caroline Nicol; Jason Stanton; Nasreddine Ammar; Lisa Barkova; Robert Behrend; Régine Cléophat; Mark Creighton; Matt Dong; Rolande Kpekou Tossou; Marianne Laurin; Katarina Michalyshyn; Kaitlyn Vanderwees
Published on March 2, 2023 PDF

This report provides a baseline projection to help parliamentarians gauge potential economic and fiscal outcomes under current policy settings.

Communications

Quotes

  • Following a stronger-than-expected performance in the second half of last year, we project the Canadian economy to effectively stagnate over the course of this year. We anticipate a further decline in residential investment and weakness in consumer spending, as the tightening of monetary policy takes hold.

  • We expect the Bank of Canada to maintain its “pause” through to the end of this year. With CPI inflation on track to return to its 2% target, we then expect the Bank to start lowering its policy rate early next year.

  • Assuming no new measures and existing temporary measures sunset as scheduled, the deficit is projected to increase to $43.1 billion in 2023-24 and the federal debt ratio to rise to 42.2% of GDP. Under status quo policy, the deficit is projected to decline over the medium term, falling to $8.7 billion in 2027-28.

  • We judge that the most important downside risk is a severe global economic slowdown (for example, due to an escalation of the war in Ukraine and or excessive monetary policy tightening by major central banks), which would negatively affect the Canadian economy and federal finances.

Yves Giroux
Parliamentary Budget Officer

News Release

{"id":44,"created_at":"2023-03-01T08:45:47-05:00","updated_at":"2023-03-02T10:20:16-05:00","slug":"economic-stagnation-ahead-as-monetary-tightening-takes-hold-says-pbo-le-dpb-estime-quavec-le-resserrement-soutenu-de-la-politique-monetaire-une-stagnation-economique-est-a-prevoir","title_en":"Economic stagnation ahead as monetary tightening takes hold, says PBO","title_fr":"Le DPB estime qu\u2019avec le resserrement soutenu de la politique mon\u00e9taire, une stagnation \u00e9conomique est \u00e0 pr\u00e9voir","body_en":"The Parliamentary Budget Officer (PBO) today released his Economic and Fiscal Outlook. The report provides a baseline projection to help parliamentarians gauge potential economic and fiscal outcomes under current policy settings.\n\n\u201cFollowing a stronger-than-expected performance in the second half of last year, we project the Canadian economy to effectively stagnate over the course of this year. We anticipate a further decline in residential investment and weakness in consumer spending, as the tightening of monetary policy takes hold,\u201d says PBO Yves Giroux.\n\nAs supply constraints ease and commodity prices remain close to current levels, softer demand in 2023 is expected to contribute to sustained reductions in consumer price inflation. \n\n\u201cWe expect the Bank of Canada to maintain its \u201cpause\u201d through to the end of this year. With CPI inflation on track to return to its 2% target, we then expect the Bank to start lowering its policy rate early next year,\u201d adds Mr. Giroux.\n\nThe PBO outlook includes new measures announced by the Government in its 2022 Fall Economic Statement and the health funding plan announced on February 7. For the current fiscal year, 2022-23, PBO projects the budgetary deficit to be $36.5 billion (1.3% of GDP) and the federal debt-to-GDP ratio to be 41.8% under status quo policy.\n\n\u201cAssuming no new measures and existing temporary measures sunset as scheduled, the deficit is projected to increase to $43.1 billion in 2023-24 and the federal debt ratio to rise to 42.2% of GDP. Under status quo policy, the deficit is projected to decline over the medium term, falling to $8.7 billion in 2027-28,\u201d says Yves Giroux, PBO.\n\nThe PBO report projects that\u2014under status quo policy\u2014the federal debt-to-GDP ratio will resume its downward trajectory, gradually falling to 38.1% in 2027-28, but remain above its pre-pandemic level of 31.2% of GDP in 2019-20.\n\nThe PBO report highlights risks and uncertainty surrounding the outlook. Setting aside new measures that are likely to be announced in the Government\u2019s 2023 budget, the risks to the PBO baseline economic and fiscal projection are roughly balanced.\n\n\u201cWe judge that the most important downside risk is a severe global economic slowdown (for example, due to an escalation of the war in Ukraine and or excessive monetary policy tightening by major central banks), which would negatively affect the Canadian economy and federal finances,\u201d adds Mr. Giroux. \n\nIn terms of upside risks, high levels of household savings coupled with a resilient labour market could fuel consumer spending above levels projected in the PBO baseline outlook.","body_fr":"Le directeur parlementaire du budget (DPB) a publi\u00e9 aujourd\u2019hui son rapport Perspectives \u00e9conomiques et financi\u00e8res, qui fournit des pr\u00e9visions de r\u00e9f\u00e9rence aux parlementaires afin de les aider \u00e0 \u00e9valuer les possibles r\u00e9sultats \u00e9conomiques et financiers des politiques actuelles.\n\n\u00ab Apr\u00e8s un rendement plus fort que pr\u00e9vu au deuxi\u00e8me semestre de 2022, l\u2019\u00e9conomie canadienne devrait stagner au cours de l\u2019ann\u00e9e, d\u00e9clare le DPB, Yves Giroux. \u00c0 mesure que l\u2019effet du resserrement de la politique mon\u00e9taire se concr\u00e9tise, nous pr\u00e9voyons une nouvelle baisse de l\u2019investissement r\u00e9sidentiel et de faibles d\u00e9penses de consommation. \u00bb\n\nAvec l\u2019assouplissement des contraintes li\u00e9es \u00e0 l\u2019offre et la relative stabilit\u00e9 du prix des produits de base, la faiblesse de la demande en 2023 devrait contribuer \u00e0 une r\u00e9duction soutenue de l\u2019inflation des prix \u00e0 la consommation.\n\n\u00ab Nous nous attendons \u00e0 ce que la Banque du Canada maintienne sa \u201cpause\u201d jusqu\u2019\u00e0 la fin de l\u2019ann\u00e9e, ajoute M. Giroux. Comme l\u2019inflation de l\u2019indice des prix \u00e0 la consommation est en bonne voie de revenir \u00e0 sa cible de 2 %, nous pr\u00e9voyons que la Banque commencera \u00e0 abaisser son taux directeur au d\u00e9but de 2024. \u00bb\n\nLes perspectives du DPB tiennent aussi compte des nouvelles mesures que le gouvernement a annonc\u00e9es dans l\u2019\u00c9nonc\u00e9 \u00e9conomique de l\u2019automne 2022, ainsi que du plan de financement de la sant\u00e9 annonc\u00e9 le 7 f\u00e9vrier. Si les politiques actuelles sont maintenues, le DPB pr\u00e9voit que le d\u00e9ficit atteindra 36,5 milliards de dollars (1,3 % du PIB) en 2022-2023 et que le ratio dette f\u00e9d\u00e9rale-PIB s\u2019\u00e9tablira \u00e0 41,8 %.\n\n\u00ab En supposant qu\u2019il n\u2019y ait pas de nouvelles mesures et que les mesures temporaires actuelles prennent fin comme pr\u00e9vu, le d\u00e9ficit devrait se creuser pour atteindre 43,1 milliards de dollars en 2023-2024, et le ratio de la dette f\u00e9d\u00e9rale devrait augmenter pour atteindre 42,2 % du PIB, affirme le DPB, Yves Giroux. Si les politiques actuelles sont maintenues, le d\u00e9ficit devrait diminuer \u00e0 moyen terme pour atteindre 8,7 milliards de dollars en 2027-2028. \u00bb\n\nSelon le rapport du DPB, si les politiques actuelles sont maintenues, le ratio dette f\u00e9d\u00e9rale-PIB devrait reprendre sa trajectoire descendante pour atteindre 38,1 % en 2027-2028, mais rester sup\u00e9rieur \u00e0 son niveau d\u2019avant la pand\u00e9mie, qui \u00e9tait de 31,2 % du PIB en 2019-2020.\n\nLe DPB fait \u00e9tat des risques et des incertitudes li\u00e9s \u00e0 ses perspectives. En faisant abstraction des nouvelles mesures qui seront probablement annonc\u00e9es dans le budget de 2023 du gouvernement, les risques li\u00e9s \u00e0 sa projection \u00e9conomique et budg\u00e9taire de base sont \u00e0 peu pr\u00e8s \u00e9quilibr\u00e9s.\n\n\u00ab Nous estimons, affirme M. Giroux, que le risque le plus important est un grave ralentissement de l\u2019\u00e9conomie mondiale (notamment en raison d\u2019une intensification de la guerre en Ukraine ou d\u2019un resserrement excessif de la politique mon\u00e9taire par les grandes banques centrales), qui nuirait \u00e0 l\u2019\u00e9conomie canadienne et aux finances f\u00e9d\u00e9rales. \u00bb\n\nEn ce qui concerne les risques \u00e0 la hausse, les niveaux \u00e9lev\u00e9s d\u2019\u00e9pargne des m\u00e9nages, associ\u00e9s \u00e0 un march\u00e9 du travail r\u00e9silient, pourraient entra\u00eener des d\u00e9penses de consommation sup\u00e9rieures aux niveaux pr\u00e9vus dans la projection de base du DPB.","release_date":"2023-03-02T09:00:00-05:00","is_published":"2023-03-02T08:57:04-05:00","internal_id":"COM-2223-044","permalinks":{"en":{"website":"https:\/\/www.pbo-dpb.ca\/en\/blog\/news-releases--communiques-de-presse\/economic-stagnation-ahead-as-monetary-tightening-takes-hold-says-pbo-le-dpb-estime-quavec-le-resserrement-soutenu-de-la-politique-monetaire-une-stagnation-economique-est-a-prevoir"},"fr":{"website":"https:\/\/www.pbo-dpb.ca\/fr\/blog\/news-releases--communiques-de-presse\/economic-stagnation-ahead-as-monetary-tightening-takes-hold-says-pbo-le-dpb-estime-quavec-le-resserrement-soutenu-de-la-politique-monetaire-une-stagnation-economique-est-a-prevoir"}},"pivot":{"publication_id":729,"news_release_id":44}}
Economic and Fiscal Outlook