UPDATE 3-Canada government warns of big budget deficits, growth forecast cut

Mon Feb 22, 2016 4:17pm EST
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(Adds BMO forecast of deficit projections)

By David Ljunggren

OTTAWA Feb 22 (Reuters) - Canada's Liberal government warned on Monday it would run much bigger budget deficits than previously anticipated, as lingering low commodity prices weaken the country's growth outlook.

The announcement by Finance Minister Bill Morneau confirmed that the Liberals' economic estimates during last year's successful election campaign had been too rosy.

Growth in 2016 would be 1.4 percent, down from the 2.0 percent forecast used in the finance department's last budget update in November, said Morneau, relying on an average of private sector economists' forecasts.

He said the 2016-17 budget gap would be C$18.4 billion ($13.44 billion), with a 2017-18 deficit of C$15.5 billion.

Those forecasts exclude spending plans to be unveiled in the March 22 budget, so the overall deficit will be several billion dollars higher than the figures released on Monday.

In November, the Liberals had forecast that excluding their spending plans, the budget deficit would be C$3.9 billion in 2016-17 and just C$2.4 billion in 2017-18.

BMO Capital Markets said in a note the Liberals now look set to run a deficit of around C$30 billion in 2016-17, assuming additional stimulus spending of roughly C$10 billion in the upcoming budget.   Continued...