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Economic and Fiscal Outlook – October 2022

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Published on October 13, 2022 PDF

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


Communications

Quotes

  • Following a strong performance in the first half, with the tightening of monetary policy, we expect growth in the Canadian economy to slow considerably in the second half of 2022 as consumer spending downshifts and residential investment continues to decline. We project real GDP growth to remain weak through 2023 before rebounding somewhat in 2024.

  • With CPI inflation solidly on track to return to its 2% target, we expect the Bank of Canada to lower the policy interest rate to its neutral level of 2.5% by the end of 2024.

  • For the current fiscal year 2022-23, we project the deficit to decline to $25.8 billion (0.9% of GDP) under status quo policy and assuming no new measures are introduced and existing temporary measures sunset as scheduled, the deficit is projected to decline further, reaching $3.1 billion (0.1% of GDP) in 2027-28.

  • With the synchronized tightening of monetary policy by major central banks around the world to reduce high inflation, there is a risk of a more severe global slowdown, which would negatively affect the Canadian economy and federal finances.

Yves Giroux
Parliamentary Budget Officer

News Release

{"id":39,"created_at":"2022-10-13T07:42:58-04:00","updated_at":"2022-10-13T10:08:01-04:00","slug":"economic-slowdown-ahead-as-monetary-policy-tightens-says-pbo-alors-que-la-politique-monetaire-se-resserre-un-ralentissement-economique-est-a-prevoir-selon-le-dpb","title_en":"Economic slowdown ahead as monetary policy tightens, says PBO","title_fr":"Alors que la politique mon\u00e9taire se resserre, un ralentissement \u00e9conomique est \u00e0 pr\u00e9voir selon le DPB","body_en":"The Parliamentary Budget Officer (PBO) today released his Economic and Fiscal Outlook. The report provides a baseline projection to help parliamentarians gauge potential economic and fiscal outcomes under current policy settings.\n\nSince the beginning of March, the Bank of Canada has increased its policy rate by a total of 300 basis points and further increases are expected. The PBO report projects real GDP growth in Canada to slow considerably in the second half of 2022 and remain weak through 2023.\n\n\u201cFollowing a strong performance in the first half, with the tightening of monetary policy, we expect growth in the Canadian economy to slow considerably in the second half of 2022 as consumer spending downshifts and residential investment continues to decline. We project real GDP growth to remain weak through 2023 before rebounding somewhat in 2024,\u201d says PBO Yves Giroux.\n\nAs supply constraints ease and commodity prices recede from elevated levels in the first half of 2022, softer demand in 2023 is expected to contribute to sustained reductions in consumer price inflation. \u201cWith CPI inflation solidly on track to return to its 2% target, we expect the Bank of Canada to lower the policy interest rate to its neutral level of 2.5% by the end of 2024,\u201d adds Mr. Giroux.\n\nIn the absence of final financial results for the past fiscal year, the PBO report estimates that there was a budgetary deficit of $97.0 billion (3.9% of GDP) in 2021-22.\n\n\u201cFor the current fiscal year 2022-23, we project the deficit to decline to $25.8 billion (0.9% of GDP) under status quo policy and assuming no new measures are introduced and existing temporary measures sunset as scheduled, the deficit is projected to decline further, reaching $3.1 billion (0.1% of GDP) in 2027-28,\u201d says Yves Giroux, PBO.\n\nThe PBO report projects the federal debt-to-GDP ratio to continue to decline from its peak of 47.5% in 2020-21, gradually reaching 36.2% by the end of our projection horizon but remain above its pre-pandemic level of 31.2% of GDP.\n\nThe PBO report also notes that uncertainty surrounding the outlook is currently high. \u201cWith the synchronized tightening of monetary policy by major central banks around the world to reduce high inflation, there is a risk of a more severe global slowdown, which would negatively affect the Canadian economy and federal finances,\u201d adds Mr. Giroux.","body_fr":"Le directeur parlementaire du budget (DPB) a publi\u00e9 aujourd\u2019hui ses plus r\u00e9centes perspectives \u00e9conomiques et financi\u00e8res. Ce rapport fournit des pr\u00e9visions de r\u00e9f\u00e9rence aux parlementaires pour les aider \u00e0 \u00e9valuer les r\u00e9sultats \u00e9conomiques et financiers des politiques actuelles.\n\nDepuis le d\u00e9but du mois de mars, la Banque du Canada a augment\u00e9 son taux directeur de 300 points de base et on s\u2019attend \u00e0 d\u2019autres hausses. Le DPB pr\u00e9voit que la croissance du PIB r\u00e9el du Canada ralentira consid\u00e9rablement pendant la seconde moiti\u00e9 de 2022 et demeurera faible tout au long de 2023.\n\n\u00ab Apr\u00e8s une solide performance pendant la premi\u00e8re moiti\u00e9 de l\u2019ann\u00e9e et \u00e0 la lumi\u00e8re du resserrement de la politique mon\u00e9taire, nous pr\u00e9voyons que la croissance du PIB du Canada ralentira consid\u00e9rablement pendant la seconde moiti\u00e9 de 2022, car les consommateurs d\u00e9penseront moins, les investissements domiciliaires continueront de diminuer et les entreprises investiront moins dans leurs stocks. Nous nous attendons \u00e0 ce que la croissance du PIB r\u00e9el demeure faible tout au long de 2023, avant de rebondir dans le courant de 2024, \u00bb affirme le DPB Yves Giroux.\n\nMaintenant que les probl\u00e8mes d\u2019approvisionnement commencent \u00e0 s\u2019estomper et que le cours des produits de base quitte les sommets qu\u2019il a connus pendant la seconde moiti\u00e9 de 2022, le ralentissement de la demande en 2023 devrait contribuer \u00e0 la baisse continue de l\u2019inflation des prix \u00e0 la consommation. \u00ab Dans la mesure o\u00f9 [l\u2019indice des prix \u00e0 la consommation] est en bonne voie de revenir au niveau cible de 2 %, nous nous attendons \u00e0 ce que la Banque du Canada ram\u00e8ne le taux directeur \u00e0 son niveau neutre, soit 2,5 %, d\u2019ici la fin de 2024, \u00bb ajoute M. Giroux.\n\nEn l\u2019absence de r\u00e9sultats financiers d\u00e9finitifs pour l\u2019exercice pr\u00e9c\u00e9dent, le DPB estime que le d\u00e9ficit budg\u00e9taire s\u2019\u00e9levait \u00e0 97 milliards de dollars (3,9 % du PIB) en 2021-2022.\n\n\u00ab Pour l\u2019exercice en cours, nous pr\u00e9voyons [que le d\u00e9ficit budg\u00e9taire] devrait descendre \u00e0 25,8 milliards de dollars (0,9 % du PIB) si la politique demeure inchang\u00e9e. En pr\u00e9sumant qu\u2019aucune nouvelle mesure ne sera pr\u00e9sent\u00e9e et que les mesures temporaires actuelles prendront fin comme pr\u00e9vu, le d\u00e9ficit budg\u00e9taire devrait continuer de descendre et atteindre 3,1 milliards de dollars (0,1 % du PIB) en 2027-2028, \u00bb dit M. Giroux.\n\nLe Bureau du DPB pr\u00e9voit qu\u2019apr\u00e8s avoir atteint 47,5 % en 2020-2021, le ratio de la dette f\u00e9d\u00e9rale au PIB continuera de descendre pour atteindre graduellement 36,2 % \u00e0 la fin de la p\u00e9riode de projection, tout en demeurant sup\u00e9rieur \u00e0 ce qu\u2019il \u00e9tait avant la pand\u00e9mie, soit 31,2 %.\n\nDans son rapport, le DPB pr\u00e9vient que les perspectives de son Bureau sont actuellement entour\u00e9es d\u2019une grande incertitude. \u00ab Si les grandes banques centrales resserrent excessivement leur politique mon\u00e9taire, cela pourrait entra\u00eener un ralentissement mondial plus marqu\u00e9, ce qui serait pr\u00e9judiciable \u00e0 l\u2019\u00e9conomie canadienne et aux finances f\u00e9d\u00e9rales, \u00bb ajoute M. Giroux.","release_date":"2022-10-13T09:00:00-04:00","is_published":"2022-10-13T08:57:06-04:00","internal_id":"COM-2223-039","permalinks":{"en":{"website":"https:\/\/www.pbo-dpb.ca\/en\/blog\/news-releases--communiques-de-presse\/economic-slowdown-ahead-as-monetary-policy-tightens-says-pbo-alors-que-la-politique-monetaire-se-resserre-un-ralentissement-economique-est-a-prevoir-selon-le-dpb"},"fr":{"website":"https:\/\/www.pbo-dpb.ca\/fr\/blog\/news-releases--communiques-de-presse\/economic-slowdown-ahead-as-monetary-policy-tightens-says-pbo-alors-que-la-politique-monetaire-se-resserre-un-ralentissement-economique-est-a-prevoir-selon-le-dpb"}},"pivot":{"publication_id":709,"news_release_id":39}}