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Economic and Fiscal Outlook – March 2022

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Published on March 1, 2022 PDF

This report provides a baseline projection to help parliamentarians gauge potential economic and fiscal outcomes under current policy settings.

Highlights

  • PBO projects growth in the Canadian economy to rebound sharply in the second quarter and remain robust in the second half of 2022 as the reopening of the economy continues.

  • Based on our outlook for inflation and the output gap, PBO projects that the Bank of Canada will increase its policy interest rate by a cumulative 75 basis points, lifting its rate to 1.00 per cent by the end of 2022.

  • PBO projects a budget deficit of $139.8 billion (5.6 per cent of GDP) in 2021-22 and $47.9 billion (1.8 per cent of GDP) in 2022-23. We project the federal debt-to-GDP ratio to peak at 47.7 per cent in 2021-22 and then gradually decline over the medium term to 42.3 per cent.

  • Due to low interest rates, the cost of servicing the federal debt reached its lowest recorded level in 2020-21 of 7.2 per cent of tax revenues. While interest rates are projected to rise, the debt service ratio will remain low, reaching 11.5 per cent of tax revenues over the medium term.


Communications

Quotes

  • Inflation as measured by year-over-year changes in the Consumer Price Index (CPI), is projected to remain above its 2% target through 2022. However, as supply constraints ease and as energy prices recede from elevated levels, we project CPI inflation to return to target in early 2023.

  • Remaining platform measures amount to $48.5 billion in new spending and pose an upside risk to our deficit and debt projection. Should Budget 2022 contain significantly more permanent spending than currently anticipated, there is a risk that the declining debt-to-GDP trajectory we project over the medium term would be reversed.

Yves Giroux
Parliamentary Budget Officer

News Release

{"id":30,"created_at":"2022-02-25T08:43:49-05:00","updated_at":"2022-03-01T08:59:10-05:00","slug":"pbo-releases-its-economic-and-fiscal-outlook-le-dpb-publie-ses-perspectives-economiques-et-financieres","title_en":"PBO releases its Economic and Fiscal Outlook","title_fr":"Le DPB publie ses perspectives \u00e9conomiques et financi\u00e8res","body_en":"The Parliamentary Budget Officer (PBO) today released his [Economic and Fiscal Outlook](https:\/\/www.pbo-dpb.gc.ca\/en\/blog\/news\/RP-2122-030-S--economic-fiscal-outlook-march-2022--perspectives-economiques-financieres-mars-2022). The report provides a baseline projection to help parliamentarians gauge potential economic and fiscal outcomes under current policy settings.\n\nThe PBO report projects growth in the Canadian economy to rebound sharply in the second quarter and remain robust in the second half of 2022 as the reopening of the economy continues. Given strong demand, continued supply constraints and elevated commodity prices, economy-wide inflation is projected to outpace real GDP growth in 2022.\n\n\u201cInflation as measured by year-over-year changes in the Consumer Price Index (CPI), is projected to remain above its 2% target through 2022. However, as supply constraints ease and as energy prices recede from elevated levels, we project CPI inflation to return to target in early 2023,\u201d says PBO Yves Giroux.\n\nBased on the outlook for inflation and the output gap, the PBO projects that the Bank of Canada will increase its policy interest rate by a cumulative 75 basis points this year, lifting its rate to 1% by the end of 2022, and gradually raising it until it reaches 2.25% in early of 2024.\n\nBased on current policy, the PBO projects budgetary deficits for 2021-22 and 2022-23 of $139.8 billion and $47.9 billion, respectively (or 5.6% and 1.8% of GDP). The federal debt-to-GDP ratio is projected to rise to 47.7% in 2021-22 and then gradually decline to 42.3% over the medium term.\n\nSetting aside remaining electoral platform measures and the Government\u2019s upcoming budget, the risks to the PBO projection are roughly balanced.\n\n\u201cRemaining platform measures amount to $48.5 billion in new spending and pose an upside risk to our deficit and debt projection. Should Budget 2022 contain significantly more permanent spending than currently anticipated, there is a risk that the declining debt-to-GDP trajectory we project over the medium term would be reversed,\u201d adds Mr. Giroux.","body_fr":"Le directeur parlementaire du budget (DPB) a publi\u00e9 aujourd\u2019hui ses [perspectives \u00e9conomiques et financi\u00e8res](https:\/\/www.pbo-dpb.gc.ca\/fr\/blog\/news\/RP-2122-030-S--economic-fiscal-outlook-march-2022--perspectives-economiques-financieres-mars-2022). Ce rapport fournit des pr\u00e9visions de r\u00e9f\u00e9rence aux parlementaires pour les aider \u00e0 \u00e9valuer les r\u00e9sultats \u00e9conomiques et budg\u00e9taires des politiques actuelles.\n\nDans son rapport, le DPB pr\u00e9voit que la croissance de l\u2019\u00e9conomie canadienne reprendra nettement au cours du deuxi\u00e8me trimestre et qu\u2019elle demeurera solide durant la seconde moiti\u00e9 de 2022 alors que se poursuit la r\u00e9ouverture progressive de l\u2019\u00e9conomie. Consid\u00e9rant la vigueur de la demande, les contraintes incessantes sur l\u2019approvisionnement et les prix des produits de base \u00e9lev\u00e9s, l\u2019inflation dans l\u2019ensemble de l\u2019\u00e9conomie continuera de d\u00e9passer la croissance du PIB r\u00e9el en 2022.\n\n\u00ab L\u2019inflation, mesur\u00e9e en fonction des variations annuelles de l\u2019indice des prix \u00e0 la consommation (IPC), devrait demeurer au-dessus de la cible de 2 % en 2022. Cela dit, \u00e0 mesure que les contraintes qui p\u00e8sent sur les cha\u00eenes d\u2019approvisionnement s\u2019all\u00e9geront et d\u00e8s que les prix de l\u2019\u00e9nergie redescendront des sommets atteints, nous pr\u00e9voyons que l\u2019inflation de l\u2019IPC retrouvera sa cible au cours du premier trimestre de 2023 \u00bb, explique Yves Giroux, directeur parlementaire du budget.\n\nEn s\u2019appuyant sur ses perspectives concernant l\u2019inflation et l\u2019\u00e9cart de production, le DPB pr\u00e9voit que la Banque du Canada va augmenter son taux directeur de 75 points de base cumulatifs cette ann\u00e9e, relevant le taux \u00e0 1 % d\u2019ici la fin de 2022, puis graduellement jusqu\u2019au taux de 2,25 % durant le premier trimestre de 2024.\n\nEn se fondant sur les politiques actuelles, le DPB pr\u00e9voit des d\u00e9ficits budg\u00e9taires de 139,8 et 47,9 milliards de dollars en 2021 2022 et en 2022 2023, respectivement (ou 5,6 % et 1,8 % du PIB). Le ratio de la dette f\u00e9d\u00e9rale au PIB devrait atteindre 47,7 % en 2021 2022 avant de revenir progressivement \u00e0 moyen terme \u00e0 42,3 %.\n\nAbstraction faite des mesures du programme \u00e9lectoral encore \u00e0 r\u00e9aliser et du budget du gouvernement \u00e0 venir, les risques qui p\u00e8sent sur les pr\u00e9visions du DPB sont plut\u00f4t \u00e9quilibr\u00e9s.\n\n\u00ab Les autres mesures de la plateforme repr\u00e9sentent 48,5 milliards de dollars en nouvelles d\u00e9penses et posent un risque accru d\u2019augmentation de nos pr\u00e9visions pour le d\u00e9ficit et la dette \u00e0 moyen terme. Si le budget de 2022 devait comprendre des d\u00e9penses permanentes plus substantielles par rapport aux d\u00e9penses pr\u00e9vues, il existe un risque que la trajectoire descendante de la dette f\u00e9d\u00e9rale au PIB que nous pr\u00e9voyons \u00e0 moyen terme doive \u00eatre invers\u00e9e \u00bb, ajoute M. Giroux.","release_date":"2022-03-01T09:00:00-05:00","is_published":"2022-03-01T08:59:10-05:00","internal_id":"COM-2122-030","permalinks":{"en":{"website":"https:\/\/www.pbo-dpb.ca\/en\/blog\/news-releases--communiques-de-presse\/pbo-releases-its-economic-and-fiscal-outlook-le-dpb-publie-ses-perspectives-economiques-et-financieres"},"fr":{"website":"https:\/\/www.pbo-dpb.ca\/fr\/blog\/news-releases--communiques-de-presse\/pbo-releases-its-economic-and-fiscal-outlook-le-dpb-publie-ses-perspectives-economiques-et-financieres"}},"pivot":{"publication_id":653,"news_release_id":30}}