Economists warn of possible 2009-10 Canada deficit

Wed Oct 15, 2008 5:58pm EDT
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By Lynne Olver

TORONTO (Reuters) - The dust had barely settled on Tuesday's Canadian election when economists and a prominent business group said the newly returned Conservative government may need to adjust course to avert a possible budget deficit next year.

The Canadian Chamber of Commerce urged Prime Minister Stephen Harper on Wednesday to give a fiscal update as soon as possible because the global economic outlook has worsened in recent weeks.

Harper said in Calgary, Alberta, that he plans to summon politicians back to work this autumn and will present an economic and fiscal update before the end of November.

"The sooner it can be done, the better, because clearly economic conditions have changed substantially since the budget in the spring," Chamber of Commerce President Perrin Beatty told Reuters.

Commodity prices have slumped and weaker U.S. demand for goods will hurt Canada's export-oriented economy, while the higher cost of credit and financial market volatility will dampen domestic spending, the chamber noted in a letter sent to Harper.

"The ability of the government to meet its commitments may be compromised by an economy that will show little or no growth over the next year, constraining government revenues," the chamber said.

"The affordability and timing of commitments will need to be reexamined to avoid risking a deficit next year."

During the election campaign, Finance Minister Jim Flaherty said he expects a budget surplus of at least C$3 billion ($2.5 billion) in the 2008-09 fiscal year.   Continued...