PBO releases scenario analysis of COVID-19 pandemic and oil price shocks

March 27, 2020, OTTAWA – The Parliamentary Budget Officer (PBO) today released his first scenario analysis of the COVID-19 pandemic and oil price shocks to help parliamentarians gauge the potential economic and fiscal implications.

The PBO report Scenario Analysis:  COVID-19 Pandemic and Oil Price Shocks presents an illustrative example of an economic and fiscal scenario—it is not a forecast.

The economic and fiscal outlook is extremely uncertain right now, which poses significant challenges for economic forecasters,” said Yves Giroux, PBO. “Given the scale of recent developments, we wanted to provide a non-partisan scenario analysis to help parliamentarians gauge the potential impacts on our economy and the Government’s finances.”

The PBO’s economic scenario assumes real GDP growth in Canada of -5.1 per cent in 2020, the weakest on record since 1962. The scenario assumes that the unemployment rate will rise to 15 per cent and remain elevated through the remainder of 2020.

Under this scenario, the budget deficit would increase to $112.7 billion in 2020-21. Relative to the size of the Canadian economy, the deficit would be 5.2 per cent of GDP and the federal debt-to-GDP ratio would rise to 38.1 per cent of GDP in 2020-21.

“While additional fiscal measures will likely be required to support the economy in the coming months, the Government’s balance sheet prior to these shocks was healthy,” adds Mr. Giroux. “Given credit market access at historically low rates, and looking to historical experience, suggests that the Government could undertake additional significant borrowing if required.”

The PBO’s fiscal results include $28.5 billion in direct federal support measures that were announced on March 11 and March 18. Additional fiscal policy measures beyond those announced as of March 23, such as the un-costed portions of Bill C-13, are not included in this scenario.

The PBO’s scenario analysis will be updated as more data and information become available.