(Reuters) - Canada will run a budget shortfall of C$28.6 billion ($21.4 billion) in the coming fiscal year, which should keep the Bank of Canada from cutting rates but will not necessarily provide a big boost to growth, a Reuters poll found.
Economists were almost evenly split over whether the deficit would lift annual growth above the central bank's 1.4 percent forecast for this year, noting it might take time for the spending to work its way into the economy.
Prime Minister Justin Trudeau's Liberal government was elected last October on a promise to run deficits for three years to help expand the economy. By contrast, the former Conservative government touted its balanced budget plans.
Finance Minister Bill Morneau, who delivers his first budget on March 22, warned last month that the deficit would be much larger than the campaign target of C$10 billion, as low commodity prices are weakening growth. Government sources have said it would not be bigger than C$30 billion.
Still, some economists said stronger growth in the United States, Canada's biggest trading partner, would have a bigger effect on the economy.
"The fiscal stimulus is unlikely to have all that much impact," said Deutsche Bank Chief Economist John Clinkard. "We expect the combination of stronger commodity prices and improving U.S. growth to do the heavy lifting."
Canada's economy is struggling with plunging prices of oil, a major export, and grew at a 0.8 percent annualized rate in the fourth quarter, much slower than the 2.3 percent in the previous period.
That slightly exceeded expectations from the Bank of Canada, which will include the budget impact in its next economic assessment due in April.
The poll of 26 analysts predicted a deficit of C$28.6 billion this fiscal year, but some estimates topped C$40 billion.
Most forecasters said the larger-than-anticipated deficit meant the Liberals would not be able to balance the budget until 2020-21, rather than by 2019-20 as they had initially promised.
Nineteen of 27 analysts in the poll said the spending moves would be sufficient to prevent the bank from cutting rates in the next 12 months, echoing a separate Reuters survey that forecast rates would hold steady until the end of 2017.
"The bank is not eager to fuel a further boost in household borrowing, and upcoming (U.S.) Federal Reserve (rate) hikes should be sufficient to prevent the Canadian dollar from climbing further and thereby putting export growth at risk," said CIBC Chief Economist Avery Shenfeld.
The Fed is expected to hike rates at least twice this year, according to another Reuters poll, and Chair Janet Yellen is likely to provide more clarity on its policy path on Wednesday.
Years of low interest rates and mortgage costs in Canada have already helped drive household borrowing to a record high.
The household debt-to-income ratio reached a new peak of 165.4 percent in the fourth quarter, adding to fears that borrowers and the broader economy would suffer a painful reckoning when interest rates eventually rise.
With unemployment near a three-year high of 7.3 percent in February and the Canadian dollar rising since late January, more than a quarter of analysts said higher fiscal spending would not be enough to ward off monetary policy easing this year.
"Fiscal packages are not some kind of macroeconomic magic button," said Sebastien Lavoie, assistant chief economist at Laurentian Bank. "It is very unlikely that the size of the fiscal stimulus would be large enough, in the C$40-C$50 billion range, to engender above-normal growth."
Polling by Anu Bararia and Krishna Eluri; Editing by Lisa Von Ahn