Canada will release a new fiscal update today, expected to limit government spending as inflation soars.
Government support for businesses during COVID-19 has produced a massive deficit, and Prime Minister Trudeau’s campaign pledged an additional $61 billion dollars over five years to promote Canada’s economic recovery. Inflation in Canada is already high, mainly due to issues in the global supply chain, and many worry that further government spending of the kind Canada has seen over the past two years will exacerbate inflation. Trudeau has also faced significant criticism during and since the election for stoking inflation with excessive government spending.
Expect, given still rising prices and interest rates across the board, for the fiscal update to lay out cutbacks on government spending, especially on stimulating the economy, for the coming year. In the medium term, therefore, expect Canada’s economic recovery to slow. Even with these measures, inflation in Canada may still remain high in the coming year as many factors contributing to it are external, not directly caused by government spending. Longer term, expect Canada to more fully economically recover after we see a more stable global supply chain and the money Trudeau planned to spend can be spent safely.
Robert is a research analyst with the Current Developments Team and a regular contributor to the Daily Brief. His primary focus is on politics, technology, and development, with particular regional expertise in sub-Saharan Africa, Southeast Asia, and Europe.