Minister of Finance Joe Oliver holds a press conference after meeting with private sector economists in Ottawa on Thursday, April 9, 2015.Sean Kilpatrick/The Canadian Press
Canada is downgrading its forecast for economic growth to just 2 per cent as Finance Minister Joe Oliver prepares to deliver the federal budget, citing the ripple effects of low oil prices.
Mr. Oliver met Thursday with private-sector economists in Ottawa for a final update before he delivers the April 21 budget. He announced that the average forecast from economists has been pushed to 2-per-cent growth for 2015. Mr. Oliver's Nov. 12 fiscal update was based on an assumption that GDP growth would reach 2.6 per cent this year.
However, the average masks the fact that there is a wide range of opinion as to where the economy is headed.
Some economists are concerned about the broader effects of low oil prices in areas such as trade and don't agree on when the positive effects of lower energy prices will kick in. Others cite a strong U.S. economy, relative stability in Europe and steady growth in retail and housing as reasons for optimism.
Some of the same economists had met the day before in Toronto as part of the C.D. Howe Monetary Policy Council. That meeting revealed that some economists – including TD Bank Group chief economist Craig Alexander and RBC chief economist Craig Wright – believe the economy is strong enough for the Bank of Canada to maintain its overnight interest rates at 0.75 per cent and then move to 1 per cent in a year.
In contrast, CIBC World Markets chief economist Avery Shenfeld recommended a further rate cut to 0.50 per cent next month and then a return to 0.75 per cent in a year.
Mr. Alexander said these differences of opinion are largely focused on the expected impact of lower oil prices.
"The big debate amongst the forecasters is the exact timing of when you're going to see these positive and negative forces," he said Thursday after his meeting with Mr. Oliver and other economists. "The problem is that the negative impact tends to hit immediately and the positives tend to be felt over an extended period of time."
Finance Canada uses the average of private-sector forecasts as the base for the budget's revenue forecasts. Finance officials generally reduce that average slightly as a form of cushion in case actual economic results underperform expectations.
The November update assumed a constant price over five years of $81 (U.S.) a barrel for North American crude. However, the commodity has been trading around $50 (U.S.) for much of 2015. Lower-than-expected inflation will also deliver a hit to Ottawa's bottom line.
The fall update had forecast a 2015-16 surplus of $1.9-billion, an estimate that was later reduced to $1.6-billion after the government announced new infrastructure spending.
Economists have said that the fall in oil prices would largely erase that expected surplus. However, Mr. Oliver announced this week that Ottawa had sold its remaining shares in General Motors Co., providing a one-time windfall to government coffers ahead of its pre-election budget.
In his first public comments on the sale, Mr. Oliver declined to say whether he would still have been able to forecast a surplus had he not booked the GM shares sale this year.
"I don't have numbers now, but we will divulge them in the future and you can determine the amount," he said in French.
The federal government sold its shares in General Motors to Goldman Sachs & Co. for $35.61 (U.S.) each, according to a filing made this week with the Securities and Exchange Commission.
That would translate into a federal revenue gain of about $3.287-billion in Canadian dollars.
Bill Curry