Budget forecasts still on track: Flaherty

The shifting state of Canada's economy - which is slowing down after a surprisingly fast start this year - is not having a major impact on the federal government's March, 2010, budget forecasts, says Jim Flaherty.

The Finance Minister, who is preparing a fall economic update to his budget numbers, met privately Monday in Ottawa with 14 private sector economists to hear their take on where the economy is headed.

"I think we're on track on our budget assumptions with respect to the economy," Flaherty told reporters following the meeting. The Minister repeated the government's plan to complete the current round of stimulus spending and then turn off the taps in the next budget with a shift to erasing the deficit by about 2015.

He said the Canadian economy is clearly not booming, but neither is the picture as volatile as it was two years ago at the start of the recession.

"We are in a time of modest economic growth," he said.

In response to questions about Canada's housing market, the Minister said Ottawa has no plans at this time to intervene again with policy measures aimed at discouraging consumers from taking on dangerous levels of debt.

The Minister also said he has no plans to scrap a cut in corporate taxes that is to take effect next year.

National Bank Financial Group economist Stéfane Marion agreed that the state of the economy does not warrant a major change in plans at the federal level.

"Canada is well-positioned to not need a second wave of stimulus," he said.

But while federal finances are on track to move toward balance once the current stimulus is over, IHS Global Insight economist Brian Bethune said some of Canada's major provinces face a bigger deficit challenge.

"The issue is more at the provincial level at this point," said Bethune.

The latest comments from private sector economists come on the heels of last week's news that the Canadian economy - as measured by gross domestic product - shrank for the first time in 11 months.

Private sector economists provided Flaherty with updated economic projections last month, but they have not been released publicly. They will be used by Flaherty as the foundation for his fall fiscal update. The government has not yet set a date for that update.

The GDP numbers for July showed a 0.1 percent contraction, which Statistics Canada said was the first drop since August 2009.

The government's March, 2010, budget laid out an example of how a change in GDP numbers could affect bottom line projections.

For instance, a one-year, one percentage-point drop in real GDP growth would increase the deficit by $3.1-billion the first year.

The 2010 budget, which used an average of private sector forecasts, projected real GDP growth of 2.6 percent for 2010, 3.2 percent for 2011 and 3 percent for 2012.

The budget projections for nominal GDP are for 4.9 percent for 2010, 5.4 percent for 2011 and 5.3 percent for 2012.

Flaherty's 2010 budget estimated the federal government would post a 2009-10 deficit of $53.8-billion, followed by a 2010-11 deficit of $49.2-billion.

The Finance Minister told reporters last month that the 2009-10 budget may come in higher than projected. However the deficit for the current year is widely expected to come in below estimates because of stronger revenues than expected in the first part of the year.