Canada fiscal update shows ongoing fiscal deterioration, BofA says
2024.12.17 10:27
On Monday, the Canadian government disclosed its 2024 Fall Economic Statement (FES), revealing a slight increase in the projected fiscal deficits for the next five years compared to the previous April budget.
Despite this, the debt-to-GDP ratio continues to exhibit a downward trend, indicating ongoing fiscal consolidation, according to a research report on Tuesday by BofA Global Research.
The FES reported that the deficit for the fiscal year 2023-24 was higher than initially projected, reaching 2.1% of GDP, up from the 1.4% forecasted in April.
For the 2024-25 fiscal year, the deficit is also expected to exceed earlier predictions, with a projection of 1.6% of GDP compared to the previously estimated 1.3%. The increase includes 0.2% of GDP allocated to new policy measures such as a two-month Goods and Services Tax (GST) holiday.
Despite the larger deficit, the government maintains its debt estimate at 41.9% of GDP, partly due to a small anticipated primary surplus.
Looking ahead to the 2025-26 fiscal year, the FES anticipates a deficit of 1.3% of GDP, which includes a primary surplus of 0.4% of GDP.
“We see downside risks to next year’s fiscal outlook on potential responses to US trade and fiscal policies,” the report added.
The political landscape was significantly impacted on Monday by the resignation of Finance Minister Chrystia Freeland prior to the release of the FES.
Attention has now shifted to the possibility of an early election next year. According to BofA, with the Conservative Party leading in the polls and prioritizing fiscal consolidation, the political landscape could shape Canada’s economic trajectory.
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