We can expect the economy to slow down significantly. 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, Former Deputy Governor of the Bank of Canada and Senior Fellow at the Griswold Center for Economic Policy Studies in Princeton will University, Carolyn A. Wilkins.
There are serious risks, added Kevin Milligan, an economics professor at the University of British Columbia, also a guest at the cabinet table, which is meeting in Hamilton, Ontario, on the second of three days. The state of the economy will affect interest rates, inflation and government revenues, he stressed.
He said with a very likely economic downturn, policymakers should remember to ensure the EI system is ready and consider another round of income transfers targeting low-income people.
“High probability of a deeper recession”
On Monday, a joint report by the Business Council of Canada and Bennett Jones firm indicated that budget projections presented in the last federal budget and the fall economic report were likely overly optimistic.
Authored by former Bank of Canada Governor David Dodge and former Liberal fiscal policy adviser Robert Asselin, the report concluded that the government’s projections were based on a plausible but optimistic set of economic and interest rate assumptions, but ones that showed little chance have on realization .
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 – be it financing health care, national defense, improving infrastructure or the like fight against climate change.
Photo: The Canadian Press/Ryan Remiorz
For the Bank of Canada to meet its 2% inflation target and prevent inflation from stabilizing at 3% or 4%, Ms Wilkins believes we will need a rise in unemployment.
The unemployment rate is currently around 5%. However, before the pandemic, people thought the natural rate was where there was unemployment [et] where it doesn’t generate inflation, it’s around 6%, she noted.
When it comes to spending, the government should keep in mind that $5 billion to $7 billion in spending can equate to an interest rate of around 25 basis points.
But not all expenses are created equal, she said. In addition, Professor Milligan says, a possible agreement with the states on long-term health financing is not likely to have much impact in the short term.
At the start of a year that will be marked by many, many uncertainties, not least because of the reopening of China’s economy, Finance Minister Chrystia Freeland said it was more important than ever for the government to act responsibly on the tax side.
Ms Freeland said she did not disagree with the Business Council of Canada study and said she had laid her cards on the table in her autumn economic statement, in which she presented an alternative scenario that avoided a weaker economy.
The baseline scenario is not the work of officials or politicians, but is based on the average forecast of private sector economists, Ms Freeland defended.
It’s objective. So we took that as a baseline, as Canada has done for 30 years now, and it’s a practice I think is important for the independence and objectivity of our forecasts, she stressed.
Minister Randy Boissonnault believes Canada’s fiscal reality will fall somewhere between the best and worst scenarios presented in last fall’s economic statement.
Photo: The Canadian Press/Nick Iwanyshyn
A turbulent year
The economy is the Trudeau government’s priority, argued Liberal lieutenant for Quebec Pablo Rodriguez during a brief scrum.
“Every day we talk about the economy, be it at group level, between colleagues or at cabinet level, because before we become MPs or ministers, we are human beings: we will fill up with ‘petrol’, we will buy grain. We know what’s happening and we’re working on it. »
— A quote from Pablo Rodriguez, Liberal Lieutenant for Quebec
Next year will be a tumultuous one for the economy, according to the federal deputy finance minister, but Randy Boissonnault insists the government still has room to maneuver on key priorities, including a new health care deal with the provinces.
There is a lot of uncertainty, Mr Boissonnault acknowledged on Tuesday morning. So we’ll keep that in mind at every step as we prepare for the budget. [de 2023]. We still have fiscal space to do the things we need to do, but the fiscal space has narrowed.
Mr Boissonnault pointed to the war in Ukraine, interest rates and inflation as some of the issues causing both uncertainty and damage to the economy.
The federal deputy finance minister said his government will consider the Business Council of Canada report and many others when preparing its economic forecast ahead of the next budget.
He believes the fiscal reality will fall somewhere between the best and worst scenarios presented in last fall’s economic statement.
The Choice of the City of Hamilton
The Liberals are behind the Conservatives in the latest polls and Hamilton’s decision to retire is electorally strategic. This city is in one of the most competitive regions in the country, and Liberals must do well there if they are to stay in power.Enlarge picture (New window)
Demonstrators eagerly awaited Justin Trudeau’s cabinet in Hamilton on Monday.
Photo: The Canadian Press/Nick Iwanyshyn
The Liberal cabinet was sharply reminded on Monday of the heavy opposition it faces in the Freedom Convoy.
A small protest greeted Trudeau upon his arrival in Hamilton on Monday afternoon. A larger group of about forty people returned in the evening. Protesters waved flags, shouted and set off firecrackers – some of which appeared to be aimed at the building.
Most protesters dispersed around 11 p.m., but at least one spent most of the night honking, reminiscent to the honking of tractor trailers that blocked much of downtown Ottawa for three weeks almost a year ago.