THUNDER BAY – Canadians could be facing a national unemployment rate of 15 per cent and a record-smashing $112.7-billion deficit because of the COVID-19 pandemic.
However, the Parliamentary Budget Office was quick to say, in a report issued on Friday, that this is only a possible scenario, and not necessarily the most likely outcome, but just an insight into a possible outcome as the country ultimately emerges from a virus lockdown.
The projection shows a potential 5.1 per cent drop in the country’s gross domestic product, the worst decline since 1962 and 6.5 percentage points lower than 2019.
It could also mean a $218-billion drop in the government’s tax base, compared to a similar projection made last November.
According to the report, the budget deficit will increase to $26.7 billion in 2019-20 and to $112.7 billion next fiscal year, an increase of $5.5 billion and $89.5 billion more than previous forecasts, leaving the deficits as 1.2 per cent in 2019-20 and 5.2 per cent in 2020-21.
“To put this in historical perspective, the last time the budgetary deficit was near 5.2 per cent of GDP was in 1993-94. Compared to our November projection, the deficit is $5.5 billion higher in 2019-20 and $89.5 billion higher in 2020‑21,” the report reads.
The scenario suggests the debt-to-GDP ratio could grow to 38.1 per cent, 7.5 percentage points higher than the November forecast and the first time since 2003-04 it’s been that high, but well below the peak of 66.6 per cent realized in 1995-96.
The report goes on to say that even after additional support measures are applied, fiscal stimulus measures may be needed to accelerate the economy to lift-off speed, particularly if consumer and business behavior doesn’t quickly revert back to normal.
The good news is it might be affordable for Ottawa to make it happen.
“Given credit market access at historically low rates, and looking to historical experience, suggests that the Government could undertake additional significant borrowing if required,” the report says.
