Canada’s Flaherty Says Slower Growth to Impact Budget

Canadian Finance Minister Jim Flaherty said lower commodity prices are slowing growth in revenue and will affect the government’s fiscal outlook.

Flaherty, in a statement released today in Ottawa, released forecasts that lowered expected nominal gross domestic product over the next five years, shaving an average of about C$25 billion in annual output through 2017.

“Canada has been affected by volatile and lower commodity prices, which are dampening government revenue growth,” he told reporters, after he met with private-sector economists. “This will have an impact on the fiscal outlook.”

Flaherty’s March 29 fiscal plan, which forecast surpluses beginning in 2015, projects the deficit for the fiscal year that began in April will drop to C$21.1 billion ($21.1 billion) from C$26.2 billion in the previous fiscal year.

Canada’s government is committed to eliminating the deficit in the “medium-term,” said Flaherty. He declined to say whether the government still planned to balance the budget in 2015 or quantify how slowing revenue growth will impact the fiscal outlook. Canada will provide an update to its March budget in “a few weeks,” he said.

“We know the revenues are off, they are not dramatically but they are off a bit and we’ll have to adjust for that,” Flaherty said. “They are not off enough that I need to worry about the fiscal track.”

Lowered Forecast

Flaherty lowered the forecast for growth in nominal GDP to 3.4 percent in 2012 from 4.6 percent in his March fiscal plan, and cut the 2013 outlook to 4.0 percent from 4.4 percent. The average growth rate for nominal GDP in the 2012-16 period was reduced to 4.2 percent from 4.4 percent. Nominal GDP is a better predictor of the tax base and revenue because it includes changes in prices.

The country’s economy grew by 5.9 percent in 2011 in nominal terms. The slowdown in 2012 reflects in part falling prices for the country’s commodities. The Bank of Canada Commodity Average Price Index has averaged 641.71 this year, 4.5 percent lower than the 2011 average.

Real GDP, which measures volumes and excludes the impact of falling commodity prices, will average 2.3 percent between 2012 and 2016, the same as the March budget.

Flaherty lowered his estimate for 2013 real GDP growth to 2 percent from 2.4 percent, while raising it over the next three years.

Surplus Forecast

Earlier today, Kevin Page, the country’s budget officer, released a report that forecast the country will swing to budget surplus in the fiscal year starting April 2015. The report also said nominal output will average C$22 billion less per year than it had forecast in April.

Economic growth should pick-up after 2013, allowing the government to meet its plan to eliminate the deficit, Craig Alexander, chief economist of Toronto Dominion Bank, told reporters in Ottawa.

“While people might focus on the reduction in the outlook for real GDP growth in 2013, it’s a very small downward adjustment, and it’s offset by a stronger profile down the course,” he said.

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net

To contact the editor responsible for this story: David Scanlan at dscanlan@bloomberg.net

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