OTTAWA - The federal budget may do many things for the minority Conservative government, but it won't do much for the economy, says an international economic forecasting firm.
Economists from Global Insight told clients at a briefing Wednesday that the Canadian economy will grow by 2.2 per cent this year -- down from 2.7 per cent last year -- and Monday's budget will do little to speed the recovery from a poor fourth quarter in 2006.
"If your primary motivation is to strengthen the economy and improve productivity, you don't do what we know is in this budget," said Dale Orr, managing director of the firm's Canadian operations.
"You don't give billions in transfers to provinces for the fiscal balance, for one."
Resolving the so-called fiscal imbalance, particularly with Quebec, is regarded as a key component of the Tory government's strategy to secure enough seats to have a shot at a majority in the next election.
Orr acknowledged that some measures believed to be in Monday's budget will help productivity, including $3 billion in tax savings. But he said there are no signs that Finance Minister Jim Flaherty is aggressively pursuing the productivity agenda the government unveiled last fall under the title Advantage Canada.
Orr said positive steps to improve the economy would include additional program spending on infrastructure, post-secondary education and training, and tax cuts for businesses to reduce the cost of capital.
Global Insight economists from the U.S. and Canada told the briefing that the economy in both countries will limp along through most of this year, recovering to close to 2006 growth levels by the end of the year.
The continued weakness in the U.S. economy from a slumping housing market will be felt particularly by Canadian forest-product exporters.
"We took it on the chin in 2006, but I think the worst is still ahead and expect a dramatic 8.4 per cent drop in 2007," economist Wojciech Szadurski said from Toronto.
The news is better for Canadian exports generally and for the slumping Canadian auto exports sector, which is expected to recover slightly with the ramping up of popular crossover and SUV lines being produced north of the border.
Other projections for the Canadian economy include:
- GDP to grow at 2.2 per cent in 2007 and 2.9 per cent in 2008.
- Unemployment to rise slightly from 6.3 per cent this year to 6.4 per cent in 2007 and 6.5 per cent in 2008.
- The loonie's appreciation will be moderate, trading at an average of US85.6 cents this year.
- Inflation will average 1.6 per cent in 2007, rising to slightly above two per cent in 2008 as energy prices rebound.
