The federal government may need to downgrade its growth projections for the Canadian economy when it releases its mid-year budget update, Finance Minister Jim Flaherty said Thursday.
The minister said prior to tabling his budget implementation bill that Canada's economy is holding up reasonably well, but is not immune to gathering global headwinds.
Flaherty said the mood at last week's meetings of finance ministers in Japan, was "not a positive one."
He noted the International Monetary Fund has scaled back global growth forecasts for the year to 3.3 per cent, Europe is in recession, America is seized by political gridlock and even emerging markets are not booming as they once were. China reported its weakest growth rate in three years earlier in the day at 7.4 per cent for the third quarter.
"So far, we're still on track and we expected moderate growth ... [but] we're watching close," he said. "We may have to revise downward somewhat, but so far we're in the same ballpark as we anticipated in the federal budget."
A modest revision is unlikely to impact the federal fiscal picture given Flaherty made room for negative surprises in the March budget, which called for growth of 2.1 per cent this year and 2.4 in 2013.
That is now slightly below the Bank of Canada's projections, even before what many experts expect to be a downward revision in next week's new monetary review. As well, the economy has missed its growth target in both the first and second quarter.
The minister stressed all governments need to remain vigilant in their efforts to reduce deficits and accumulated debt.
The latest comments come after a new report by the Macdonald-Laurier Institute warning Ontario and Alberta are headed to a European-style crisis in the next 10 to 30 years if their policies do not change. "In the medium to long term, public finances in several provinces are unsustainable, raising the spectre of debt crises, damaged credit ratings and federal bailouts if corrective steps are not taken," the report warns. "If such crises occur, they will harm not only the provinces directly concerned, but could affect the entire economy."
The alarm about Ontario was expected given its $15-billion deficit, but the analysis that oil-rich Alberta has the "highest default probability" 30 years into the future was a shocker. Joffe said Alberta needs to be watched because it is running large deficits that are projected to persist, will experience rapid growth in its senior population than any other province, and because most of its eggs are in the oil basket and subject to price volatility.
