Thank you very much, Mr. Chairman. It's a pleasure to be here.
We heard from the Office of the Parliamentary Budget Officer today, who gave us their take on the fiscal outlook for the next five years. We did send around—and hopefully you did get a copy—our fiscal table, our view, and I'll touch on that in just a second. If you don't have it, I'll qualitatively describe it.
But I do want to jump a little bit further into this issue of a wider-than-usual dispersion in private sector forecasts. I think it's very important, and it obviously reflects an extremely unusual period that we're in. I would argue that this is going to remain the case over the foreseeable future. There are two reasons why. Obviously, we're coming off a very difficult financial crisis. We're hearing central bankers around the world using the expression “greater than usual uncertainty”, but it's also this notion, in my view—and this is shared by many—that the so-called period of great moderation is behind us.
We went through a period in the nineties and through much of the 2000s where the view was that if you kept inflation low and stable, economic cycles would be less extreme than they were in the eighties and before. Some argued that there was also a little bit of luck. In the end, I think recent developments do show us that luck was at play. Part of the problem with some of these developments is that they did encourage more risk taking. The period of great moderation is behind us, so I think we can expect bigger economic cycles than we've seen in the last 15 years or so, and also in financial markets.
Just to look at the forecasts—I looked at Consensus Economics' numbers—in the range of forecasts we are looking at between 1% and something over 3% in U.S. growth next year. The Canadian dollar will be ranging between 87¢ and $1.15 through next year. For Canadian economic growth, there's a little bit less of a difference, less than 2% and more than 3%, less than the U.S. The fact of the matter is we are confronting as forecasters very difficult issues, both from a cyclical perspective and from a structural perspective.
In terms of the cycle, we talk about the external risks. In the U.S., of course, as I mentioned, all this quantitative easing...will it be effective? It's very difficult to ascertain at the moment. But I also am concerned about some of the domestic issues, some of the imbalances that we've seen develop--household indebtedness. As forecasters we're trying to assess how these imbalances will play out when interest rates are extremely low, and we expect that will remain the case in the near term. These imbalances could get worse. In my view, there's an upside risk in the near-term forecast. In the longer term, though, it could be a big downside risk. I'm just giving you a sense that these are very significant issues.
From a longer-term perspective, we're seeing economists split in two camps. You get some who think we're very much dealing with the status quo of a 3% trend growth rate, or slightly less, and others, in the camp that I'm in, who think growth is likely to be closer to 2% on a longer-term basis.
Dealing with the demographics, productivity is something that obviously is a huge driver of those medium- to long-term views. But when you think about it, most of us are a little reticent to start building in an acceleration of productivity growth. We just haven't seen it. Yet, if we were to give a list of things governments had to do 15 years ago to improve productivity, a lot of those things have been done—mostly recently, the HST, in both Ontario and B.C.—and yet we haven't seen that acceleration. Maybe it's not long enough. Maybe it's a lag.
So even though in my forecasts I don't build it in, what I'm trying to indicate here is that there are some upside risks as well to the longer-term view.
I'm assuming you did receive that forecast. If you haven't, our view is somewhere in between the Parliamentary Budget Officer's and the fiscal update. We are more negative on the longer-term projections for the economy, building in some of these downside risks on demographics. In the short term—and as Kevin Page just mentioned—in terms of some of these issues with consumer spending, I think consumers will be hard pressed to grow their spending at anything more than a very modest clip on a three-to-five-year basis, so I've built that in. I've taken our economic projections. I've left the program spending track unchanged from the budget update. I just assume that the governments are able to meet that.
Interest rate projections are built off our interest rate forecasts. We don't have a very big increase in interest rates, but very much a gradual increase to something close to what we feel is more normal. Obviously there are risks around that projection three to five years out. We have a deficit in 2015-16 of about $5 billion, which is about an $8 billion weaker projection than in the budget update, again reflecting our weaker forecasts.
Certainly this is not a big share of GDP--0.2%. I would argue, five years out, that it's actually not that dramatically different from the private sector. Again, there's uncertainty of how you take these projections and build your revenues off them. We've assumed a very similar track as that in the budget update in terms of GDP to revenues. That's our view of where we're headed.
To bring it to a close, one thing we need to come to grips with in future budget plans is dealing with this wider than usual dispersion. When I look around the country, I look at what other governments do. I like the B.C. model. They have a group of forecasters who meet annually. In the budget they provide about a three- or four-page text box that describes the range of private sector projections. It gives a fair amount of detail in there: who's high, who's low, and all the groups. Even in their observations they talk about how these projections unfold and the difference there. They ask us what probability we would assign to each outcome. So if my base case is this, what probability do I assign to it. They take that into account in their budget plans. I must say I would put a lower probability on this than I would have, say, three years ago. I would put maybe 50% on this outcome, this base case, whereas maybe a few years ago I would have put 60% to 70%. Again, I think looking at the broader range, as well as what my fellow speakers have commented on, more analysis on the budget would be helpful, looking at what these forecasts mean in terms of potential budget impacts.
I will stop there.
Thank you.