(Hamilton) The warnings are multiplying and all point in the same direction: the Trudeau government will have to temper its spending ardor if it does not want to fuel inflationary pressures and force the Bank of Canada to tighten its Monetary Policy.
Worse still, the financial projections contained in Finance Minister Chrystia Freeland’s November economic statement are already proving too optimistic. The risks that a recession and prolonged high interest rates pose to the federal government’s fiscal space have been underestimated.
After the Business Council of Canada released an analysis of the risks looming over the economy on Monday, three experts stressed the need for caution in 2023 due to severe turbulence looming on the horizon.
These three experts – Carolyn Wilkins, former first deputy governor of the Bank of Canada and senior fellow at the Griswold Center for Economic Policy Studies at Princeton University, Kevin Milligan, professor of economics at the University of British Columbia, and Ani Arora, chief statistician at Statistics Canada – provided an update on the state of the Canadian economy to Trudeau government ministers, gathered in Hamilton for a three-day cabinet retreat.
PHOTO NICK IWANYSHYN, THE CANADIAN PRESS
Carolyn Wilkins, Kevin Milligan and Ani Arora
The Trudeau government is under intense pressure from the provinces to significantly increase provincial health transfers to $28 billion a year. He is also under pressure from the NDP, with whom he has reached an agreement ensuring the political survival of the Liberals in the House of Commons until June 2025. The NDP is calling in particular for new investments to create a national program drug insurance.
“We can expect the economy to slow down considerably. We can expect the unemployment rate to rise both here in Canada and in other jurisdictions such as the United States, Europe and the United Kingdom,” said Ms.me Wilkins at a press briefing after meeting with the Prime Minister and Ministers.
Mme Wilkins pointed out that the effects of the meteoric rise in interest rates decreed by the Bank of Canada in 2022 in order to curb inflation are only just beginning to be felt. She said that if further increases are necessary, Canadians could be hard hit because of the high debt load of the Canadian population.
For his part, Kevin Milligan agreed that there are “serious risks”. Interest rates, inflation and the expected slowdown in the economy will have a big impact on federal government revenues, he said. Finance Minister Chrystia Freeland is preparing her next budget, which should be tabled in the spring.
In its joint report released Monday, the Business Council of Canada and the firm Bennett Jones said that the fiscal forecasts presented in the last federal budget and the fall economic statement were too optimistic.
The report, written by former Bank of Canada Governor David Dodge and former Liberal financial policy adviser Robert Asselin, concluded that the government’s forecasts were based on a “plausible but optimistic” set of economic and interest rates, which however are unlikely to materialize.
The authors warn that there is a “high probability of a deeper recession” this year and that Liberal promises in all sectors will cost much more than expected – whether it is funding health care, national defense , infrastructure improvements or the fight against climate change.
With the Canadian Press