OTTAWA (Reuters) - Canada’s federal budget may be delayed and the deficit likely will be higher than had been expected as oil prices slump and the coronavirus spreads, economists said on Monday.
Finance Minister Bill Morneau said the government was “looking at taking some initiatives this week,” as Canada reported its first coronavirus death, with a steep decline in oil prices expected to hit the world’s fourth-largest crude producer hard.
Morneau told reporters in Ottawa on Monday that the date for the budget for the fiscal year beginning in April would be announced “soon”. He said Canada’s fiscal position was strong, and the government had the capacity to help the economy weather the recent shocks.
“We will certainly be going through deliberations on what the appropriate budget stance is. As the economy develops, we will be responding appropriately,” he said.
Morneau had been expected to deliver his budget later this month, but recent developments may affect that, economists said.
“The federal budget, which was probably in draft form at this point, may have been based on what now looks like an outdated economic backdrop,” said Avery Shenfeld, chief economist at CIBC Capital Markets. “Revenues will certainly be weaker.”
Economists were already expecting slow growth in the second quarter, but now the third quarter could also be in jeopardy, Shenfeld said.
Canada’s main stock index fell on Monday by the most since the 2008 global financial crisis, and the loonie hit a near-three-year low as plunging oil prices rattled investors.
“Obviously, all of this comes at an extremely delicate time,” said Doug Porter, chief economist at BMO.
“It is possible that what they will do is make it quite clear that the budget wasn’t meant to address the short-term developments and that there’ll be supplemental measures,” he said. “Another possibility is delaying the budget.”
Porter said BMO was looking to cut its 2020 economic growth forecast to around 0.5%, although that number has not been finalized.
“That’s down a little bit more than a percentage point from what the consensus was around the start of the year,” Porter said. In its December update, the Canadian government forecast 1.6% growth for this year.
Scotiabank’s Deputy Chief Economist Brett House said the current economic environment will see increased government spending regardless of the budget’s timing.
“It almost certainly means larger deficits and more spending,” House said.
Reporting by Kelsey Johnson in Ottawa; Additional reporting by David Ljunggren and Steve Scherer in Ottawa; editing by Steve Scherer and Rosalba O'Brien