UN forecasts 1.9% drop in global economic growth in 2023 – The Globe and Mail IG News

IG news Update,

On the second day of the federal cabinet retreat, Prime Minister Justin Trudeau and his ministers heard from a trio of economists who brought grim news about Canada’s economic outlook.

The economists – Kevin Milligan of the University of British Columbia, Caroline Wilkins of Princeton University and Anil Arora of Statistics Canada – reported one morning that the economy is expected to weaken significantly, unemployment will rise and inflationary pressures may not subside as quickly as expected. Was. Cabinet session.

“There are some serious risks to next year,” Milligan told reporters after meeting with Trudeau and other ministers in Hamilton.

“The most likely scenario is that we have reached a soft spot. We need to be aware of those little challenges.

Milligan said “policy makers should take this into account” before they commit to any major new expenditure – spending that could burn a huge hole through the federal budget if the economy is unstable.

Ottawa is considering some new spending, including a significant increase in the Canada Health Transfer (CHT), to help prop up a health care system that is facing many challenges.

As part of the NDP-Liberal Supply and Confidence Agreement, the government has also agreed to set up some sort of national pharmacare program by the end of the year – a policy that will potentially cost the federal coffers billions of dollars.

“I would say we can expect the economy to slow down significantly, the unemployment rate to rise. Whether or not we have a hard landing, no one really knows, but I wouldn’t rule it out in any good plan,” Wilkins he said.

Kevin Milligan, professor of economics at the University of British Columbia, speaks to the media during the second day of meetings at the Liberal cabinet retreat on January 24, 2023 at the Hamilton Convention Center in Hamilton, Ontario. (Nick Ivanishin/The Canadian Press)

A “hard landing” means a marked economic downturn or sharp decline following a period of rapid growth. Policy makers and central bankers are trying to arrange a “soft landing” on a cyclical downturn in economic growth that avoids recession.

If unemployment rises, however, it could actually reduce inflation, Wilkins said.

With the job market being so tight, wages have increased significantly – which in turn is pushing up prices.

Wilkins said if there is some loss of employment, that could put some pressure on the cost of services. That could help the overall inflation picture, he said, as higher service costs proved “stickier” than the price of hard goods.

A slowing economy could undermine Ottawa’s fiscal health, leading to billions of dollars in deficits and more debt. The national debt is projected to increase from $628.9 billion in 2015 to $1.1 trillion in 2022.

An ambitious stimulus package to prop up a faltering economy could fuel inflation already not seen in decades.

Freeland says the government is willing to reduce

Finance Minister Chrystia Freeland said on Tuesday that, with the gloomy outlook, the government must act prudently.

He said that if tax revenue decreases, the government will reduce.

“I think that’s always the approach governments should take. We’re very focused on taking a fiscally responsible approach,” Freeland said.

There’s also a lot of global uncertainty, Freeland said, which forces Ottawa to proceed with caution.

She pointed to China’s decision to dump its “zero COVID” policy, which could lead to strong economic growth in that part of the world as restrictions are eased.

But rapid growth in China is a double-edged sword because it could push up global energy prices as the country consumes more oil and gas — a development that could have ramifications for other industrialized economies.

The government says there is one budget item it will deliver despite economic constraints: more health care funding for provinces and territories.

Freeland said the government was “committed to doing its part” on health and promised to be “loyal” to the party’s 2021 election platform commitments, which included hiring 7,500 doctors and nurses, improving long-term care homes Resolve to do, build mental health. Services are more readily available and employ thousands of personal support workers (PSWs).

“We must weather the economic storm of 2023 together,” Randy Boissonault, assistant federal finance minister, told Power & Politics on Tuesday.

Canada’s associate finance minister MP Randy Boissonault acknowledged Tuesday that it is going to be a “turbulent” year for the economy. He stressed that the government still has room to spend some money on big priorities.

“There’s a lot of uncertainty so we’ll be watching every step of the way as we prepare for the budget,” Boissonault said.

“We still have some fiscal room to do what we need to do, but fiscal room has tightened.”

He added that Ottawa is still prepared to approach “big ticket items” “in a responsible manner”.

Asked whether a multi-billion-dollar stimulus for health transfers could put Canada in a shaky financial position, Milligan said it is likely the money will be phased out over the long term, meaning the budget hit could be one Will not be clear in the year.

Ottawa’s forecast was too optimistic, says report

On Monday, a joint report from the Business Council of Canada and Bennett Jones warned that the fiscal forecast and economic downturn statement set out in the last federal budget was perhaps too ludicrous.

The report, written by former Bank of Canada governor David Dodge and former Liberal financial policy advisor Robert Asselin, said the government’s forecast was based on a “plausible but optimistic” set of economic and interest rate assumptions, which are unlikely to come true. Is.

They warn that there is a “high chance of a more severe recession” this year and that Liberals’ promises on everything from increasing national defense spending to improving health care funding and infrastructure and climate change are far higher than anticipated. going to be spent.

Boissonault said the report is one of several the government will be keeping an eye on as it makes its economic forecasts ahead of the next budget.

He said he thinks the fiscal reality will fall somewhere between the best- and worst-case scenarios set forth in Freeland’s collapse economic statement.

That fiscal update projected a deficit of $36.4 billion for the 2023-24 fiscal year. There is a risk that the deficit projection may never materialize – it could be much worse.

In a November fiscal update, Freeland called for a “negative scenario” for growth and employment – ​​one in which thousands of jobs were lost as a result of the recession, fewer taxes collected, increased Employment Insurance (EI) payments. Debt service costs and dramatically higher deficit – $49.1 billion in 2022-23.

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