Canada’s budget watchdog released an assessment of the potential hit that COVID-19 and the crash in crude oil prices could inflict on the Canadian economy Friday.
In the scenario analysis, the Parliamentary Budget Officer (PBO) said that the deficit for the current fiscal year, which closes March 31, could be as high as $26.7 billion, which would be an increase of $5.5 billion compared to the budget officer's November forecast, before increasing to $112.7 billion in the 2020-21 fiscal year. The PBO stressed that this analysis is not a forecast or outlook that should be considered the base-case expectation.
The PBO’s analysis is based on a scenario that would see the economy contract 5.1 per cent this calendar year, which would be the weakest on record since 1962, while the unemployment rate would shoot up to 15 per cent.
“The economic and fiscal outlook is extremely uncertain right now, which poses significant challenges for economic forecasters,” Parliamentary Budget Officer Yves Giroux said in a release. “Given the scale of recent developments, we wanted to provide a non-partisan scenario analysis to help parliamentarians gauge the potential impacts on our economy and the government’s finances.”
The $26.7 billion deficit figure does not include extra spending the Liberals announced Wednesday in the form of a new benefit for Canadians who lose their income.
That measure pushed direct spending on the government's economic bailout package to $52 billion from $27 billion.
The PBO said extra stimulus measures may be required to ensure the economy hits "lift-off speed," especially if consumer and business behaviour does not quickly revert back to "normal" fast enough.
“We have not assumed a strong rebound in real GDP growth in the second half of the year,” wrote the PBO. “The subdued rebound reflects our judgment that, similar to the global financial crisis and previous oil price shocks, the Canadian economy recovers gradually in the presence of large shocks.”
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