Budget Breakdown
by Ryan Lewenza, CFA, CMT, Private Client Strategist, Raymond James
â˘Â This week we received the highly anticipated budget from the new Federal Liberal government and it signals a major change in fiscal policy from the previous Conservative government. Given the continued weakness in our economy, the Liberal government is looking to jump start our economy by adding significant stimulus through infrastructure spending and other initiatives.
â˘Â The government plans to spend $120 bln on infrastructure over the next ten years, with $11.9 bln being spent over the next two years. As a result of the increased spending (and lower expected economic growth), the government will be incurring large deficits over the next six years at a projected $120 bln cumulative. This fiscal year alone, the deficit is projected to be a staggering $29.4 bln.
â˘Â We see this boosting GDP growth modestly by just 0.1% to 0.2% this year and add as much as 0.5% to GDP growth in 2017. This should reduce the need of further Bank of Canada (BoC) rate cuts, with the next move likely to be a rate hike later in 2017. We see minimal impact of the stimulus on our stock market.
â˘Â Provided that these measures help to increase productivity and provide a boost to our long-term growth profile, then these decisions should prove to be the correct and responsible actions to address our current economic malaise. However, we believe it is paramount that in the years following this dramatic increase in deficits that the government look to rein in future spending and deficits, such that we do not fall into the trap of structural deficits like those seen during the 1980s and 1990s.
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