(Ottawa) The Parliamentary Budget Officer (PBO) expects inflation will return to the Bank of Canada's 2% target by the end of the year and that the federal deficit will increase amid the economic slowdown.
The fiscal body's latest economic and financial forecasts come as the federal government prepares to present its spring budget and Canadians anxiously wait for the central bank to start cutting interest rates.
The report expects the first interest rate cut to take place in April, slightly earlier than financial markets expected.
The Bank of Canada is scheduled to make a rate announcement on Wednesday and is widely expected to keep its key interest rate at 5%.
High interest rates have impacted the Canadian economy as consumers cut spending and businesses see sales slow.
Statistics Canada reported last week that the economy grew by 1% annually in the fourth quarter. This growth was largely driven by increased exports, supported by strong spending trends in the United States.
The CBO says the economy is expected to grow at a modest 0.8% this year, slightly below the Bank of Canada's forecast of 1%.
Weak economic growth is also expected to weigh on government coffers.
The CBO also projects that the federal deficit will rise to $46.8 billion for the current fiscal year, provided that no new measures are taken and current temporary measures expire as scheduled.
This would exceed the government's forecast for the fall, which was $40 billion.
The report warns that if the Bank of Canada keeps interest rates higher than expected for longer than expected, the deficit could be larger and the economy weaker.
Ottawa is facing significant budget pressures
Canadian Finance Minister Chrystia Freeland announced Monday that she will present the budget, which will assess the state of federal finances, on April 16.
The budget is likely to be a difficult exercise for Liberals.
The government is facing significant budget pressures and will have to balance the desire to take further action on housing.
The budget is also an opportunity for the Liberals to try to win back Canadians who supported the Conservatives.
The Minister of Finance recently confirmed her commitment to the new financial guarantees introduced in the fall to reduce the deficit.
“For our government, it is extremely important to invest in Canada and Canadians… and to do so in a fiscally responsible way,” Ms. Hans said.I Freeland told reporters before introducing the pharmacare bill last week.
“In the autumn economic statement, we set certain trends in the budget, which we will respect. »
The federal government promised in the fall that the deficit in the current fiscal year would not exceed its $40 billion forecast.
According to the Treasury Department, the federal deficit for the current fiscal year reached $23.6 billion at the end of December.
The government also seeks to reduce the debt-to-GDP ratio in 2024-2025 compared to the expectations of the fall economic statement, and keep the deficit below 1% of GDP in the period 2026-2027.
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