Economists at some of Canada’s biggest financial institutions appear willing to give Prime Minister
Mark Carney’s first budget
a chance to prove its worth, even though several of them said the government’s plans for the next five fiscal years don’t go far enough to protect and encourage growth in an economy suffering the
effects of U.S. tariffs
.
And there is little doubt the economy is suffering.
The budget estimated growth of 1.1 per cent for this year and 1.2 per cent in 2026, down from 1.9 per cent and 2.1 per cent respectively in the fall economic statement released last December. The unemployment rate is expected to remain elevated, according to the budget, averaging seven per cent this year and eventually slowing to six per cent in 2029.
Here’s what economists highlighted from Budget 2025.
‘Rome wasn’t built in a day’: CIBC Capital Markets
“The real challenge won’t be to finance a few years of higher deficits, but to get money out the door and into large capital projects and housing developments in time to lift growth while the economy struggles to adjust to U.S. tariffs,” economists at CIBC Capital Markets said in a note.
Budget 2025 projected deficits of $78.3 billion in fiscal year 2025
–
26 and $65 billion the following year, with shortfalls remaining elevated through the five-year outlook.
Economists Avery Shenfeld, Ali Jaffary and Katherine Judge said the 2025
–
26 deficit — which still came in below some estimates for a $100-billion shortfall — shouldn’t set off alarm bells over “fiscal sustainability,” as it comes in at 2.5 per cent of gross domestic product (GDP).
“This year’s federal deficit isn’t out of line with past periods of economic weakness,” the trio said.
Adding in provincial deficits boosts the measure by four per cent, to 4.5 per cent of GDP.
But even that doesn’t raise alarm bells, according to the economists, as it places Canada in the “middle of the pack” compared with other advanced economies and below the United States, which has a deficit to GDP ratio of six per cent.
“That U.S. deficit is structural and likely to be sustained, rather than linked to a lull in economic activity as is the case north of the border,” they said.
President Donald Trump’s trade war has created a situation where stimulus is needed now. But the budget, which depends on significant capital projects to counter the damage from tariffs, won’t boost the economy for some time.
“Rome wasn’t built in a day, and neither are ports, housing projects or LNG terminals,” they said.
Shenfeld, Jaffary and Judge warned that as spending finally gets going, cuts to the federal service — projected at $60 billion over a five-year window — could eat away at any boost to growth.
“So Canadians will need to exercise some patience in judging this budget’s ultimate impacts on growth, which might show up over the longer term as the economy benefits from the improvements in capital assets and infrastructure,” they said.
‘Transitional’ not ‘transformational’: Alberta Central
“The budget was advertised as ‘transformational,’ but it is rather ‘transitional,’” Charles St-Arnaud, chief economist at credit union Alberta Central, said in a note, “pivoting away from some policies of the previous government.”
Still, the budget challenges some records set during times of economic stress.
For example, the last time the deficit hit 2.5 per cent of GDP, outside of the pandemic, was in 2009 during the great financial crisis. That means the debt to GDP ratio will continue to rise, instead of slowing as last year’s fall economic statement had projected.
St-Arnaud said there were a few areas in the budget where the outcome remains in doubt, including spending cuts of $60 billion over five years. St-Arnaud said caution was also called for on the expectation that private sector business investment will increase by $500 billion, enticed by tax incentives.
He warned that the budget could lead to “some creative accounting,” as the government tries to stick to its new fiscal anchors of balancing operating spending and revenues while maintaining a falling deficit-to-GDP ratio.
“While some may worry about the size of the deficit and the increase in spending, Canada’s economic challenges require bold initiatives, whether to offset the impact of U.S. tariffs on the economy, improve affordability or boost productivity,” St-Arnaud said.
‘A reluctance to go all-in’: Desjardins
Canada’s budget 2025 fell short on a few fronts for Desjardins’s chief economist, Jimmy Jean, and deputy chief economist, Randall Bartlett.
For example, Ottawa said it is targeting $60 billion in spending cuts over the next five years, which is “short of expectations,” Jean and Bartlett said in a note.
Earlier in the year, the federal finance minister called for $60 billion in cuts over three years. That is half the savings that were previously touted. Meanwhile, tax credits worth $500 billion to help boost investments “fell short of the ambitious expectations the Government of Canada built up prior to budget day,” they said.
The government also switched its fiscal anchors to a falling deficit-to-GDP ratio and a balanced operating budget, but Jean and Bartlett think Canada’s AAA credit rating will remain intact despite the changes.
“We anticipate rating agencies will be satisfied that the fiscal forecast was in line with expectations, and that a debt downgrade is unlikely in the near term as Canada continues to have one of the best fiscal positions among advanced economies,” they said.
The economists were also underwhelmed by the announced $2.3 billion in spending on defence research and development, which they consider a major wealth generating area.
“All in, while it is broadly headed in the right direction, Budget 2025 seemed to reflect a reluctance to go all-in on investing in Canada and finding savings to help pay for it,” they said.
• Email: gmvsuhanic@postmedia.com
Canadians will have to wait for boost from Carney's budget, say economists
2025-11-05 20:38:06
