Coronavirus partly to blame for slower economic growth, higher deficit projected by PBO

The Parliamentary Budget Officer (PBO) is expecting a higher federal deficit for 2019-20 than it did in November, due in part to slower growth it anticipates the coronavirus epidemic will cause, as well as the unpredictability that comes with the worldwide health scare.

“We assume that the coronavirus (2019-nCoV) will lower real GDP growth by 0.3 percentage points in the first quarter of 2020. That said, estimates of the overall impact of the coronavirus are highly uncertain at this time,” the report from the office of Parliamentary Budget Officer Yves Giroux that was published on Thursday said.

PBO is projecting gross domestic product (GDP) growth of 1.5 per cent in the first quarter of 2020, compared to the 1.8 per cent it estimated in November.

PBO’s deficit projection for 2019-20 is $23.5 billion, which is a $2.3 billion larger shortfall than its November estimate, but still a several-billion dollar rosier outlook than the government forecasted in its December economic and fiscal update.

Its report outlines that because Canada is not one of the “most affected” countries by the coronavirus that the impact on its economy could be diminished compared to other countries. That factor, and that Canada’s medical community appears to be better prepared to deal with the coronavirus than it was during the SARS scare of 2003, led the PBO to believe the Canadian economy won’t suffer to the degree that it did during that outbreak.

However, since China – where the epidemic began and the death toll has approached 1,400 and the total number of patients has climbed to nearly 60,000, according to recently available figures – is much more important to the global economy than it was during SARS, “disruptions to China’s production could cause wide-ranging shortages and delays in global supply chains,” the PBO says.

Its report says GDP growth will be hurt both directly (in industries like air transportation, and hospitality) and indirectly (through supply chain disruptions and hurt commodity prices) by the coronavirus epidemic.

READ MORE: PBO sounds alarm on federal spending practices

The report also notes that Canada’s GDP suffered a slowdown at the end of last year. This, its report says, was due to temporary disruptions to mining, oil and gas, motor vehicle and rail transportation sectors. PBO projects that Canada’s gross domestic product (GDP) grew by only 0.3 per cent in the fourth quarter of last year after GDP increased by 1.3 per cent in the 2019’s third quarter.

The PBO’s projections of GDP inflation also underwent similar shrinkage compared to the November projection. This caused the office to project that the government’s tax base would be $4 billion lower in 2019 than it had projected in November.

The PBO also says in the economic and fiscal monitor report it released on Thursday that there are an additional $1.6 billion of measures the office hadn’t accounted for that the federal government announced in its December fiscal update. There were another $2.5 billion worth of new spending measures announced by the government that the PBO had accounted for in its November projection, as well as another $0.8 billion in higher operating developments that are partially offset due to stronger revenues.

Despite the downturn towards the end of the last year, the PBO expects the government to collect $340.9 billion in budgetary revenues this fiscal year, which is $0.5 higher than in the November outlook. Personal income tax levels projected at $1.2 billion higher than November can be credited for higher government revenues. They’re offset slightly by lower-than expected tax revenues from import duties following the removal of tariffs the government had on U.S. products that included steel and aluminum.

The federal government’s total program expenses are $340.9, matching that of its revenues. On top of the government’s program expenses are another $23.5 billion in public debt charges, which is identical to what PBO projects as being its deficit this year.

READ MORE: Feds in for challenges in quickly reaching $1.5B savings target from spending review: PBO

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