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Summary
PBO provides the Standing Committee on Finance with an economic and fiscal outlook in April and October. Given the timing of the Government’s budget this year, PBO is providing the Committee with a pre‐budget economic and fiscal outlook, which is constructed on a status quo basis. That is, it shows what the Government’s budgetary position would be under PBO’s current economic outlook, including only fiscal measures that have been announced prior to Budget 2015. PBO will update its outlook for new budget measures and provide related analysis in a future report.
In the absence of new policy measures, PBO projects that the Government’s budget would be in surplus in 2014‐15 and roughly balanced over the remainder of the outlook. PBO projects that the federal debt ratio will continue to decline over the medium term, on track to meet the Government’s commitment to reduce federal debt to 25 per cent of gross domestic product (GDP) by 2021.
| 2014-15 | 2015-16 | 2016-17 | 2017-18 | 2018-19 | 2019-20 | |
|---|---|---|---|---|---|---|
| Budgetary revenues | 279.4 | 289.9 | 300.4 | 308.4 | 320.9 | 332.9 |
| Program expenses | 249.0 | 263.7 | 273.1 | 280.9 | 291.0 | 297.9 |
| Public Debt charges | 27.0 | 25.1 | 25.5 | 28.2 | 30.6 | 32.7 |
| Budgetary Balance | 3.4 | 1.2 | 1.8 | -0.8 | -0.7 | 2.2 |
| Federal Debt | 608.5 | 607.3 | 605.5 | 606.3 | 607.0 | 604.8 |
| % of GDP | ||||||
| Budgetary revenues | 14.1 | 14.5 | 14.4 | 14.2 | 14.2 | 14.2 |
| Program expenses | 12.6 | 13.2 | 13.0 | 12.9 | 12.9 | 12.7 |
| Public Debt charges | 1.4 | 1.3 | 1.2 | 1.3 | 1.4 | 1.4 |
| Budgetary Balance | 0.2 | 0.1 | 0.1 | 0.0 | 0.0 | 0.1 |
| Federal Debt | 30.8 | 30.4 | 28.9 | 27.9 | 26.9 | 25.8 |
The status quo fiscal outlook is based on PBO’s current economic outlook which, consistent with recent futures prices, assumes that crude oil prices increase gradually over the medium term from around US$50 per barrel for West Texas Intermediate (WTI) to US$66 per barrel by the end of 2020.
PBO projects that real GDP growth will slow from 2.5 per cent in 2014 to 2.0 per cent in 2015 and then average 1.8 per cent over 2016‐2020. Although real GDP growth is projected to be relatively stable over the medium term, the overall outlook masks a significant rebalancing in the Canadian economy, with the composition of growth shifting away from consumer spending and housing to exports and business investment.
| 2014 | 2015 | 2016 | 2017 | 2018-2020 | |
|---|---|---|---|---|---|
| Real GDP Growth | 2.5 | 2.0 | 2.1 | 1.8 | 1.8 |
| GDP Inflation | 1.8 | -0.8 | 2.5 | 2.1 | 2.0 |
| Nominal GDP ($ billions) | 1,976 | 2,000 | 2,093 | 2,175 | 2,347 |
As a result of the decline in oil prices, PBO expects Canada’s terms of trade (export prices relative to import prices) to deteriorate by 8.5 per cent in 2015Q2 (year‐over‐year). This decline results in lower economy‐wide prices as measured by the GDP deflator and is estimated to reduce nominal GDP by $66 billion annually, on average, over 2015‐2019.
PBO has simulated the impact of lower oil prices on the Canadian economy using its macroeconomic model. The results indicate that the impact on real GDP is ultimately negative, albeit relatively modest, reducing real GDP by 0.4 per cent in 2016 and 0.5 per cent in 2017. However, real gross domestic income (GDI), which measures domestic purchasing power and is a more relevant indicator of economic well‐being, is estimated to decline by 2.6 per cent annually, on average, over 2015‐2019.
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