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The Canadian economy is on recovery path and finally staring at sustainable and inclusive growth. However, the growth rate is nowhere near the pre-pandemic levels due to rising debt and mounting fiscal deficit. The debt-heavy balance sheet of the Bank of Canada could be a setback to the government for the upcoming years.
In its recent two-year forecast, the Conference Board of Canada estimates that Canadian gross domestic product (GDP) will increase 5.8 per cent this year and 4 per cent by 2022.
On March 30, TD Bank Group also improved its outlook for the federal GDP and said the economy is set to expand by nearly 6 per cent in 2021. Top Canadian lender, Royal Bank of Canada, also raised its GDP forecast to 6.3 per cent in 2021, compared with its previous outlook of 5 per cent economic growth.
Despite the economic recovery, the federal government debt freight has become a concern, which could confine the country’s potential prospects. Hence, the federal budget would have to pave the way to sustainable growth, which is scheduled for April 19.
The current debt-to-GDP ratio of Canada stands at over 100 per cent, and the liberal government has allocated C$ 70 billion to C$ 100 billion for an additional relief package, to revive the economy after the pandemic-caused recession last year.
Optimistically, the Conference Board foresees higher oil prices could float the Canadian economy, with an anticipated average price around US$ 68 per barrel this year and US$ 71 per barrel in 2022.
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The Conference Board predicts a 0.7 per cent surge in GDP in the first quarter, with the country-wide businesses weighed down by the coronavirus cases that are still rising in several provinces.
On March 31, Statistics Canada also released its monthly GDP data for January, with a month-over-month rise of 0.7 per cent, led by the wholesale trade and manufacturing sector.
From here, the economic recovery will depend on public health and inoculation programs. The healthcare experts expect the third wave of the coronavirus due to rising new mutants that could create some barriers to the ongoing revival of the Canadian economy. Finance Minister Freeland might consider these catalysts while announcing the federal budget.
