OTTAWA — The federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year, the parliamentary budget officer said on Thursday.
The PBO also projects in its latest economic and fiscal outlook that weak economic growth this year will begin to rebound in 2025 thanks to falling interest rates.
The budget watchdog estimates that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion, and in her spring budget said the deficit for 2023-24 would stay in line with that promise.
The new fiscal guardrail was part of an effort to quell fears that high government spending would fuel price growth and work at odds with the Bank of Canada’s inflation-taming efforts.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
A spokeswoman for Freeland would not say whether the federal government still expects the deficit to meet its fiscal guardrail.
“Our federal government is making historic investments in the priorities of Canadians — in housing, affordability, and economic growth — and we are doing this in (a) fiscally responsible way,” Katherine Cuplinskas said in a statement.
Meanwhile, the PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
The report forecasts real gross domestic product will grow by 2.2 per cent in 2025, up from a projected 1.1 per cent for 2024.
The PBO also expects the central bank will keep cutting until its policy rate reaches 2.75 per cent in the second quarter of 2025.
The Bank of Canada’s next interest rate announcement is scheduled for Wednesday, as economists gear up for a potential supersized rate cut.
Earlier this week, Statistics Canada reported that the annual inflation rate fell to 1.6 per cent in September, which is below the Bank of Canada’s two per cent target.
The softer-than-expected inflation figure spurred more speculation that the central bank will opt for a half-percentage point interest rate cut next week, in lieu of its usual quarter-percentage point cuts.
This report by The Canadian Press was first published Oct. 17, 2024.