Economic and Fiscal Outlook — March 2023
This report provides a baseline projection to help parliamentarians gauge potential economic and fiscal outcomes under current policy settings.
Following a stronger-than-expected performance in the second half of last year, we project the Canadian economy to effectively stagnate over the course of this year. We anticipate a further decline in residential investment and weakness in consumer spending, as the tightening of monetary policy takes hold.
We expect the Bank of Canada to maintain its “pause” through to the end of this year. With CPI inflation on track to return to its 2% target, we then expect the Bank to start lowering its policy rate early next year.
Assuming no new measures and existing temporary measures sunset as scheduled, the deficit is projected to increase to $43.1 billion in 2023-24 and the federal debt ratio to rise to 42.2% of GDP. Under status quo policy, the deficit is projected to decline over the medium term, falling to $8.7 billion in 2027-28.
We judge that the most important downside risk is a severe global economic slowdown (for example, due to an escalation of the war in Ukraine and or excessive monetary policy tightening by major central banks), which would negatively affect the Canadian economy and federal finances.
Parliamentary Budget Officer