Canada should resist further spending amid U.K. turmoil, analysts say
Scotiabank Vice President Rebekah Young estimates that windfall will lower this year’s deficit to around $35 billion, or 1.2 per cent of GDP, compared to the $52.8 billion budget forecast. The deficit hit 14.9 per cent in 2020-21, while it was running around one per cent in the years before the pandemic.The government should “pay down debt so that when there is more capacity to make new investments they are ready to run with it,” Young said.
Canada’s general government net debt-to-GDP ratio, which includes provincial debt, is the lowest among Group of Seven wealthy countries and the IMF expects it to decline slightly to 30.3 per cent of gross domestic product next year.Still, if it were to decline more quickly, the government could tackle some long-term challenges once inflation, at seven per cent in August, comes down.
“At the moment, inflation is high and it hasn’t shown any signs of decelerating in terms of underlying core measures,” said Desjardins Group’s Mendes. “That is the number one issue facing the economy.” To soften the blow of inflation, the provinces and the federal government already have announced some $21 billion in stimulus, which will feed into the economy in coming months, Young said.
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