Federal books in good shape: Manley

(November 3, 2003) The federal government expects to remain in the black despite the string of bad luck dealt to the Canadian economy this year, according to federal Finance Minister John Manley.

“We will not run a deficit this year,” Manley told the House of Commons Standing Committee on Finance in Ottawa. “Canada’s economic fundamentals remain sound, and our economy remains well placed to show sustained growth over the medium term, even in this somewhat uncertain global environment.”

Manley cited the now familiar list of economic bogeymen — severe acute respiratory syndrome (SARS), a single case of mad-cow disease, blackouts in Ontario and forest fires in B.C. — as having slowed the economy down since February, when the federal budget predicted 3.2% growth for the year.

“The problem is mainly the speed at which the Canadian dollar has appreciated. We don’t have any historical precedence for that,” says Marc Levesque, associate vice-president and senior economist at TD Economics. “If you were just to take traditional economic models and apply them blindly to what’s occurred since the beginning of the year, you’d have a devastating hit on economic growth. That’s not what we’re seeing.”

The new projection for 2003 is 1.9%, based on a survey of private sector economists, with an improving world economy expected to buoy growth to 4% in 2004.

“If you look at private sector forecasters, more and more there’s a spread between the numbers people are looking at,” says Lévesque. “I think that illustrates the uncertainty that surrounds any economic forecast for Canada.”

The impact of the slower growth rate on federal coffers will be less dramatic, Manley says, as the shortfall in tax revenues was largely neutralized by government spending cuts. But new spending initiatives in response to the SARS and mad-cow crises have trimmed the expected surplus from $4 billion to $2.3 billion.

The economic update projects a cumulative budget surplus of over $25 billion over the next five fiscal years.

Manley says the biggest hazards remain the reliance on a U.S. economic recovery and the high value of the Canadian dollar. The U.S. economy seems to be turning around, with an economic surge of 7.2% in the third quarter.

Filed by Steven Lamb, Advisor.ca, slamb@advisor.ca