Trudeau cabinet economists expect ‘the economy to slow significantly’

(Hamilton) Canada’s economy is set to experience a major recession, economists have been invited to hold talks with federal ministers at Justin Trudeau’s cabinet winter retreat before returning to parliament next week.

“We can expect a significant slowdown in the economy. We can expect the unemployment rate to increase both in Canada and in other jurisdictions such as the United States, Europe and the United Kingdom,” said Carolyn A., former vice-chairman of the Bank of Canada and senior fellow at the Griswold Center for Economic Policy Research at Princeton University. Wilkins.

Kevin Milligan, an economics professor at the University of British Columbia, added that “significant risks” were at the cabinet table during the second of three days in Hamilton, Ontario. He insisted that the economic situation will affect interest rates, inflation and state revenues.

He said an economic downturn is “highly likely” policymakers should keep in mind to make sure the EI system is “ready” and “consider another round of income transfers to low-income people.” it comes on purpose.

A joint report Monday by the Business Council of Canada and the firm Bennett Jones found that the budget projections presented in the latest federal budget and the fall economic report were too optimistic.

The report, written by former Bank of Canada governor David Dodge and former Liberal fiscal policy adviser Robert Asselin, concluded that the government’s projections were based on a “reasonable but optimistic” set of economic and interest rates but were unlikely to materialize.

The authors warn that a “deeper recession is likely” this year and that the Liberals’ promises in all sectors will cost more than expected – whether it’s health care, national defence, infrastructure improvements or tackling climate change.

In order to meet the Bank of Canada’s 2% inflation target and prevent price increases from stabilizing at 3% or 4%, M^I Wilkins felt that “we’re going to need an increase in unemployment.”

Currently, the unemployment rate is around 5%. But before the pandemic, “people thought there was a natural proportion […] where there is unemployment [et] where it does not cause inflation, it is around 6%,” he said.

As for spending, the government should consider that $5-7 billion in spending could equate to around 25 basis points of interest.

But not all costs are created equal, he said. Moreover, according to Professor Milligan, a possible agreement with the provinces on long-term health funding should not have a big impact in the short term.

“Turbulent” year

Next year will be “turbulent” for the economy, according to the federal finance minister, but Randy Boissonnault insists the government still has room to maneuver on key priorities, including a new health deal with the provinces.

“There is a lot of uncertainty,” Mr. Boissonnault acknowledged Tuesday morning. So we’ll be following you every step of the way as we prepare for the budget. [de 2023]. We still have the financial space to do what we need to do, but the fiscal space has shrunk. »

Mr. Boissonnault singled out the Ukraine war, interest rates and inflation among the issues that are both uncertain and hurting the economy.

Mr. Boissonnault said his government will consider the report from the Business Council of Canada and many others when making its economic projections ahead of the next budget.

He believes the budget reality will be between the best-case and worst-case scenarios presented in last fall’s economic report.

Finance Minister Chrystia Freeland is expected to deliver an economic update to Cabinet on Tuesday.

Health transfers

Prime Minister Justin Trudeau said cost of living and Canada’s competitiveness are his priorities ahead of this Cabinet meeting.

One of the issues that could change the government’s spending projections is the ongoing negotiations with the states for a new deal on federal health transfers. Provinces have asked for billions over the next decade to prop up health systems on the brink of collapse.

Ottawa insists on responsibility for any new health care funding, and Trudeau has not publicly committed to meeting the provincial leaders’ demands.

Trudeau began Tuesday by meeting with Hamilton Mayor Andrea Horwath, a former leader of Ontario’s New Democratic Party. Mr. Trudeau and Mr.^I Horwath mentioned housing as one of the main topics of conversation.

Housing prices, and especially the lack of affordable housing, have become a major issue for governments at all levels.

The Liberals are trailing the Conservatives in the latest polls, and Hamilton’s retirement is electorally strategic. The city is in one of the most bitterly contested regions of the country, and the Liberals will have to do well there if they want to stay in power.

The Liberal cabinet also received a stark reminder on Monday of the strong opposition it faces in the “freedom caravan”.

Trudeau was met with a small protest after arriving in Hamilton on Monday afternoon. A larger group, about forty, returned in the evening. Protesters waved flags, shouted and set off fireworks – some apparently aimed at the building.

Most of the protesters dispersed around 11 p.m., but at least one spent much of the night recalling the tractor-trailer honks that shut down downtown Ottawa for three weeks nearly a year ago.

With information from Mia Rabson