Thank you, Mr. Chair.
You can call me J.D., like it has been for most of my years on Parliament Hill. Thank you very much.
Mr. Chair, vice-chairs, members of the committee, thank you for your invitation and for maintaining the tradition of inviting the Parliamentary Budget Officer to appear before you at least twice a year. Speaking of tradition, as you know, I sat to the right of many committee chairs for a number of years and enjoyed a unique view of the proceedings. My view may have changed, but my goal of serving parliamentarians remains the same.
My colleagues and I are pleased to be here to present the Parliamentary Budget Officer's Economic and Fiscal Outlook Update, which we released yesterday. While here, I would also like to briefly discuss the results of the PBO's report, which examines Canada's fiscal structure from a longer-term perspective.
I am joined by Mostafa Askari, Assistant Parliamentary Budget Officer, and Peter Weltman, Acting Director General. I would also like to highlight the great work done by Helen Lao, Randall Bartlett and Scott Cameron, who helped draft the report.
The first part of my presentation will be in French, and then I will continue in English.
The global economic outlook has deteriorated somewhat since the April 2013 Economic and Fiscal Outlook. According to the most recent International Monetary Fund World Economic Outlook, weaker global growth prospects are driven to a large extent by appreciably weaker domestic demand and slower growth in several key emerging market economies. Modestly stronger growth than anticipated in some advanced economies is insufficient to mitigate those factors.
In the United States, despite improving fundamentals, the PBO has marked down its U.S. economic outlook in the near term. This reflects continued fiscal drag, as well as historical revisions to the U.S. System of National Accounts. Further, the commodity price outlook has been revised down over the projection, reflecting downward revisions to crude oil future prices, resulting, in part, from the continued strength of U.S. production.
These developments have led PBO to revise down the outlook for the Canadian economy relative to its April 2013 EFO. Currently PBO projects Canadian real GDP to grow by 1.6% this year, 2% next year, and 2.6% in 2015.
As the economy reaches its potential level of economic activity, PBO projects real GDP annual growth to average 2% per year over the period 2016-2018. PBO's current outlook for the Canadian economy reflects the effects of the government's economic action plan 2013, which resulted in projected savings of $10.8 billion as well as the freezing of the EI premium rate that was announced in September 2013.
Continued downward revisions to the private sector average forecast of real GDP growth have brought it broadly in line with the PBO projection through 2016. However the PBO's outlook for nominal GDP—the broadest measure of the government's tax base—is, on average, $25 billion lower than the projection based on average private sector forecasts, in part due to the downward revision to the GDP inflation projection.
PBO judges that the balance of risk to the private sector outlook for nominal GDP is tilted to the downside, likely reflecting larger impacts from government spending reductions as well as differences in views on commodity prices and their impacts on real GDP growth and GDP inflation.
On the basis of the revised economic outlook, PBO projects that a budgetary balance will improve from a deficit of $18.9 billion in 2012-13 to a surplus of $5.1 billion in 2018-19 due to cyclical recovery of tax revenues and restrained operating expenses of the government.
The improvement in the budgetary balance is less pronounced in the PBO's April projection due mainly to the lower level of nominal GDP. Assuming that the government does not increase its spending above planned levels, PBO estimates that, given the economic uncertainty, the likelihood of realizing a budgetary balance or better is approximately 50% in 2015-16, 55% in 2016-17, and 60% in 2018-19.
The weaker improvement in the budgetary balance relative to PBO's April projection is reflected in PBO's projection of the government's structural budget balance. PBO estimates that the structural balance will improve from a deficit of $6 billion in 2013-14 to a surplus of $4.2 billion in 2015-16 and will remain in surplus on average thereafter.
Finally, assessing whether a government fiscal structure is sustainable requires looking over a longer horizon to take into account the economic and fiscal implications of population aging in the context of the existing policy environment.
The PBO provided such an assessment for the federal government and provincial-territorial-local-aboriginal governments, as well as the Canada and Quebec pension plans, in Fiscal Sustainability Report 2013. The PBO's analysis shows that the federal government's fiscal structure is sustainable with fiscal room of 1.3% of GDP, while the Canada and Quebec pension plans are also sustainable. In contrast, the consolidated provincial-territorial-local-aboriginal government sector is not sustainable, with a fiscal gap of 1.9% of GDP.
Thank you, Mr. Chair. My colleagues and I will be happy to respond to questions you may have regarding our reports or any other relevant matters.
