Finance Minister Chrystia Freeland will issue a fall economic statement Thursday that will include new money for students and low-income workers, while also sending a message that Ottawa is committed to fiscal discipline and won’t fan the flames of inflation. Two government sources say the update will also include new details on the Canada Growth Fund, which was first announced in April’s budget as a $15 billion plan to spur investment in a net zero-emissions economy. There will also be new details on Canada’s response to the recently passed United States Inflation Reduction Act, a massive bill that contains a series of government incentives for green energy investment that Canadian businesspeople said raise competitiveness concerns. The Globe and Mail did not identify the sources as they were not authorized to comment publicly on the matter. Private sector forecasts suggest Ms Freeland, who is also deputy prime minister, will be able to announce the deficit for the current financial year could be less than the $52.8 billion budgeted for of April. The Parliamentary Budget Officer released a report last month saying this year’s deficit is on track for $25.8 billion, but that doesn’t count new spending to be announced at Thursday’s briefing. The PBO also projected a steadily declining deficit in the coming years. Other economists have suggested a different view, predicting a recession in 2023 that would push next year’s deficit higher. Federal Innovation Minister Francois-Philippe Champan gave the government’s double-edged message on Wednesday while speaking to reporters. “It’s time to stand up for Canadians. I mean, we’ve all seen the price of milk, the price of bread, the price of energy. It’s time to help Canadians,” he said when asked if Thursday’s statement would show Ottawa is cutting back on spending. He later added: “It is certain that we are in an economic period where caution is required.” A key challenge is to ensure that fiscal and monetary policy do not act at cross-purposes in the current inflationary environment. The government may lean toward new spending or tax relief measures to support Canadians struggling with rising prices. But this can be counterproductive, as new spending or tax cuts add to overall demand in the economy, fueling inflation. The April budget said the deficit would be reduced to $8.4 billion by 2026-27. The PBO said in its report that the deficit would be reduced to $3.4 billion by that year. An economic update usually includes an overview of the Treasury’s expectations for the Canadian economy and often announces some new spending. The documents include revised estimates of what the latest economic and spending trends mean for Ottawa’s projected bottom line in the coming years. In a series of recent speeches before Thursday’s briefing, Ms. Freeland presented an economic message focused on fiscal discipline and encouraging economic growth through programs that boost research and development and investment in clean energy. Perrin Beatty, president and CEO of the Canadian Chamber of Commerce, said in an interview Wednesday that he would like to see the update show a clear path toward a balanced budget. While he said support may be needed for those most in need, he hopes to see an update that provides a clear agenda for economic growth. “We are going through the pandemic now. And what we need to do is make sure we have a path to put our financial or fiscal house in order,” he said. “You cannot get back to balance given the size of the deficit and the debt. Nor should we look to inflate our way out of the debt we have accumulated. The only responsible way to achieve this is through development. And that means that then we have to unlock investments from the private sector.” The Liberal government announced a $4.6 billion inflation relief package in September aimed at lower-income Canadians. Canadian Labor Congress president Bea Bruske said in an interview Wednesday that more is needed, but she doesn’t expect much from Thursday’s statement. “We expect to see very little new investment announced in this update, so we’re a little concerned about that,” he said. “We think there’s a tremendous need for some of these investments because workers are certainly feeling very stretched these days, with the rate of inflation and everything else going on in the world.” The economic outlook has worsened in recent months. The Bank of Canada’s aggressive push to tackle inflation with higher interest rates is hitting the housing market, squeezing consumer spending and curbing business investment. Exports are also expected to fall as commodity prices fall and key trading partners head into recession in the coming months. The Bank of Canada now expects almost zero GDP growth in Canada for the rest of the year and the first half of 2023. “It’s not a severe recession, it’s not a big contraction, but you could certainly have negative growth for a couple of quarters,” Bank of Canada Governor Tiff Macklem told a Senate committee on Tuesday. Multiple forces combine to create the slowdown. Having allowed inflation to soar to a multi-decade high, central banks around the world are rapidly raising interest rates in one of the most comprehensive bouts of monetary policy tightening on record. The US Federal Reserve, the world’s largest and most important central bank, announced another rate hike of 0.75 percentage points on Wednesday. Meanwhile, Russia’s invasion of Ukraine has sparked an energy crisis in Europe and China’s COVID-19 lockdowns have further disrupted global supply chains. The International Monetary Fund said last month that around a third of the global economy will be in recession next year and warned that “the worst is yet to come”. Canada has some strengths, and the IMF expects it to post the second-strongest growth next year among the G7 countries, after Japan. “We are fortunate that this war is a little bit further away from us,” Mr Macklem told the Senate committee. “The other advantage we have is that we produce many of the commodities that are in short supply. We extract oil, we extract natural gas, we extract wheat, we extract potash. The prices of these things are high.”
