Canada to outline new forecasts and fiscal situation as inflation surges

[December 14, 2021]   By Steve Scherer

OTTAWA (Reuters) - Canadian Prime Minister Justin Trudeau's government will outline new fiscal and economic forecasts in a document to be released on Tuesday as inflation surges and some business groups and opposition politicians call for more spending restraint.

Canada's Prime Minister Justin Trudeau, with Minister of Foreign Affairs Melanie Joly, speaks during a press conference on Parliament Hill in Ottawa, Ontario, Canada, December 8, 2021. REUTERS/Blair Gable/Files

The so-called fall economic update (FES) will be released at 4 p.m. ET (1900 GMT) and is likely to include some new spending as well. The FES will be "limited in scope" in terms of expenditure, a source told Reuters last week.

Trudeau pledged C$78 billion ($61 billion) in new investment over five years to foster Canada's economic rebound during the campaign ahead of his September re-election.

"My reading of the tea leaves would be: Even if the fiscal statement is light, it doesn't mean that the upcoming budget will be," said Tony Stillo, director of Canada economics at Oxford Economics.

The government is expected to release its 2022-23 fiscal-year budget during the first part of next year. This fiscal year's budget included C$101 billion in investments over three years.

Business lobbies and the opposition Conservative Party have urged the government to scale back spending after inflation hit an 18-year high. This is also because the costs to service the country's debt are expected to start rising next year.

The Bank of Canada left its key overnight interest rate at 0.25% last week, but reiterated that economic slack would be absorbed in the "middle quarters" of 2022, setting the stage for a first rate hike as soon as April.

COVID-19 supports for businesses and individuals produced the highest deficit since World War Two last year. Already in October, Freeland indicated Canada would significantly scale back spending on pandemic support programs now that more than 85% of the eligible population was vaccinated against COVID-19.

In April, Freeland said debt as a percentage of output would progressively decline, providing a fiscal anchor going forward. In the budget, debt was forecast to be 51.2% of gross domestic product this fiscal year, falling to 50.7% the following year.

Fitch Ratings stripped Canada of a triple-A credit rating during the pandemic.

"All of us have to be really humble about the high degree of uncertainty there is in the Canadian economy and the global economy today," Freeland said on Monday. "And now we're turning the global economy back on, and we're finding that it's pretty complicated."

(Reporting by Steve Scherer; Editing by Nick Zieminski)

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