September 26, 2016 / 4:51 PM / 4 years ago

Canadian economic growth is less than forecast, says Morneau

OTTAWA (Reuters) - Canadian economic growth this year is less than the government initially expected, Finance Minister Bill Morneau said on Monday, in a sign Ottawa could run budget deficits for longer than planned.

Canada's Finance Minister Bill Morneau prepares to testify before the House of Commons finance committee on Parliament Hill in Ottawa, Ontario, Canada, September 19, 2016. REUTERS/Chris Wattie

The Liberal government based the federal budget in March on an average private sector growth forecast of 1.4 percent for the 2016-17 fiscal year. The document also included a C$6 billion ($4.6 billion) adjustment for risk.

“In our last budget we made provisions about the level of growth and we put in a level of prudence. Now I can say we made a good decision because the level of growth is a bit lower than forecast,” Morneau told reporters. He did not give details.

The budget forecast a deficit of C$29.4 billion, three times larger than the Liberals initially promised, in order to boost spending on infrastructure and other areas in hopes of stimulating the economy.

The government typically provides a fiscal update to the budget in November or December and Morneau indicated Ottawa might provide a further boost if needed.

Asked whether the update would be a mini-budget with additional fiscal stimulus, he replied: “We will look at the economic situation in order to figure out what we should be doing, not only in November, but in our upcoming budget.”

Although Morneau said in late March that Ottawa would balance the books in about five years, the official opposition Conservative Party says the spending plans are excessive and will result in long-term deficits.

“If nominal growth is lower it would probably mean revenue growth isn’t as strong and it would imply a larger deficit if nothing else changes,” said Paul Ferley, assistant chief economist at the Royal Bank of Canada.

“The question is ... will it be offset by what they propose in the update or will they allow the deficit to come in larger? We’ll have to see.”

Morneau said a decade of sub-par global growth “is continuing to present real challenges in Canada.”

He also said he was staying focused on the housing market and welcomed recent moves by the Bank of Montreal and Scotiabank to tighten rules for foreign home buyers.

“We are pleased to see they are taking a look at the risks they have in the market and taking action they think is appropriate,” he said.

A recent acceleration in home prices in Vancouver and Toronto has raised fears that Canada’s housing market is over-valued.

($1=1.32 Canadian dollars)

With additional reporting by Leah Schnurr and Andrea Hopkins in Ottawa; Editing by David Gregorio and Meredith Mazzilli

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