Can the federal budget reset Canada's economy?
CBC
By just about every measure, Canada’s economy is stuck in a ditch. Growth has sputtered. The unemployment rate is rising.
In normal times, the remedy is clear. The Bank of Canada cuts interest rates and the federal government boosts spending to help businesses and households weather the storm.
These are decidedly not normal times.
And Bank of Canada governor Tiff Macklem knows it.
"The structural damage caused by tariffs is reducing our productive capacity and adding costs. This limits the ability of monetary policy to boost demand while maintaining low inflation," said Macklem last week.
Lowering interest rates can only do so much, he says. And in this uniquely weird moment for the Canadian economy, he says monetary policy has a limit.
"It can't target specific sectors. It can't target the hard hit sectors: aluminum, steel, autos. It can't help companies find new markets. It can't help companies reconfigure their supply chains. What it can do is it can try to mitigate the spillovers from the hard hit sectors to the rest of the economy," he said.
There’s a clear message in that statement. Not just to Canadians struggling to stay above water in these trying times. Economists say Macklem is sending an important signal to the federal government.
“The Bank seems to think it has done all it can and is now handing over the reins to the federal government to support the economy through fiscal policy,” says David-Alexandre Brassard, chief economist at the Chartered Professional Accountants of Canada.
That fiscal policy will be laid out for all to see on Tuesday.
Randall Bartlett, deputy chief economist at Desjardins says the budget itself will be truly unprecedented.
“It has been unprecedented not only in its delay, but also in its planned spending, tax cuts and savings. Deficits could rise to levels not seen in decades outside of a recession or pandemic, and the debt-to-GDP ratio is likely to be headed in the wrong direction,” wrote Bartlett in a budget preview last month.
The question of course, is whether the budget can do what the Bank of Canada cannot.
“Most definitely it can,” says Benjamin Reitzes, managing director with BMO Economics.
