Growth in the Canadian economy slowed sharply in the fourth quarter of 2019—significantly weaker than projected in our November 2019 Economic and Fiscal Outlook.
- PBO estimates that real GDP advanced by 0.3 per cent (at an annual rate) in the final quarter of 2019 as a number of temporary disruptions weakened business activity.
- We expect real GDP to grow by 1.5 per cent in the first quarter of 2020. While some of the impact of the disruptions is expected to be reversed, we project slower growth due in part to the coronavirus and weaker business investment.
The slowdown in the fourth quarter stems from temporary disruptions in the mining, oil and gas, motor vehicle and rail transportation sectors. We assume that the coronavirus will lower real GDP growth by 0.3 percentage points in the first quarter of 2020. That said, estimates of the overall impact of the coronavirus are highly uncertain at this time.
For fiscal year 2019-20, we project that the Government’s budgetary deficit will be $23.5 billion (1.0 per cent of GDP). Our updated projection of the budgetary deficit in 2019-20 is:
- $2.3 billion higher than our estimate in the November 2019 Economic and Fiscal Outlook; and
- $3.1 billion lower than Finance Canada projected in its December 2019 Economic and Fiscal Update (EFU). Excluding the Government’s risk adjustment, our current estimate is $1.6 billion lower.
Our updated projection includes $1.6 billion in additional policy measures that were announced in the EFU but were not accounted for in our November outlook. An additional $0.8 billion in fiscal developments adds to the budgetary deficit due to higher operating expenses, which are partially offset by stronger revenues.
Our upward revision to the Government’s operating expenses reflects higher current service costs for pension and other future benefits, resulting from new information provided in the EFU.