Budget '09: Economic Outlook

Big spending, but a cloudy future still looms

Economic Outlook

While the government papers the country with stimulus money, exactly what kind of impact it will have is still anyone’s guess. There is no sure bet that the economy will spring back to life anytime soon. Indeed, most economists will admit that precisely how the short term economy reacts to these kinds of measures is, at best, hard to understand and predict. As Finance Minister Flaherty told reporters, “we’re in uncharted waters.”

The government notes that even with billions of dollars being pumped into the economy, the next two years will be bleak. Canada is, after all, somewhat at the mercy of the larger global economy and the speed with which countries like the United States and China can recover.

Also at
Budget ‘09: Tories take a final leap into the void
Budget ‘09: The Overview
Budget ‘09: Bailout
Budget ‘09: Stimulus
Budget ‘09: Personal Finance

There remains much doubt as to whether or not people and businesses will start spending and lending like they did before the recession—clearly one of the finance minister’s chief aims. “There is no silver bullet to get capital markets going again,” says Glen Hodgson, chief economist with the Conference Board of Canada.

Another big concern is whether government will be able to break from its deficit spending as quickly and easily as it says it will. This budget plans for a return to a ‘small surplus” by as soon as 2013. “Those are very rosy projections,” says Kevin Gaudet, director of the Canadian Taxpayers Federation. He points out that national debt is projected to return to the same level it was in 1999-2000—$542 billion, up from just over $458 billion this year. That means higher debt interest (38 per cent of government revenue) that will burden future taxpayers.

The government, though, sees a light at the end of the tunnel. If all goes to plan, the stimulus will take affect over the coming two years, at which time the economy will begin to rebound. Canada, it points out, is in a far better position to weather short-term deficits than the United States and some European countries, which already carried big deficits leading into the recession. So as surpluses return, Canada’s new debts could, theoretically, be paid off relatively easily. As Flaherty summed up in his budget speech: “It allows us to meet our short term needs while serving our long term goals.”