By Canadian Press

Rising interest rates could dampen stimulus impact from federal budget, PBO says

May 27, 2021 | 8:37 AM

OTTAWA — The parliamentary budget officer says an expected rise in interest rates should temper the amount of economic stimulus from the Trudeau Liberals’ budget.

The report today from Yves Giroux suggests the federal budget could increase economic growth by an additional 0.6 percentage points this year on the back of consumer spending, as well as residential and business investment.

He also estimates that the budget’s measures will create 89,000 more net new jobs by the end of 2025 compared to the path Giroux saw for the labour market before the budget’s unveiling.

Giroux’s report estimates that budget deficits over the next five years will in total be $117.1 billion more than his pre-budget forecasts.

He says that suggests only a small portion of the nearly $140 billion in new spending in the Liberal government’s budget will be offset by economic growth.

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While the budget estimated a deficit in the last fiscal year of $354.2 billion, Giroux estimates the figure will clock in at $370.9 billion as a result of unprecedented spending to counter the financial fallout from COVID-19.

This report by The Canadian Press was first published May 27, 2021.

The Canadian Press