In our projection we incorporate the external outlook essentially through the U.S. economy and through commodity prices, as well as the economy of the rest of the world, which we look at, and it is informed by the International Monetary Fund.
In our recent projection, we made significant downward revisions to the outlook for U.S. real GDP growth from 2.6% to 2.1%, and from 2.6% to 2.3%. As well, we reduced significantly the outlook for commodity prices, reflecting the weaker global environment.
These are the main channels that are the global macroeconomics that are affecting the Canadian economy.
At the same time, we have a fiscal policy that provides an increase to aggregate demand in the economy and a monetary policy that maintains its interest rate at current levels to accommodate this. This provides an offsetting stimulus to the economy.
On the question of prudence, our projections are what we call balanced risk, in that we think the upside and the downside possibilities are roughly balanced. As a forecaster, this is what you want to do if you are concerned about forecast accuracy. If you want to minimize the size of your errors, you want to take into account the balance of risks.
A prudent forecast is different in that it wants to ensure, with a high degree of probability, meeting or exceeding a target.
They may sound like the same thing, and it may sound prudent in both cases, but we think of them as distinct approaches to forecasting.
In the current budget, our reading of it, based on the fall update and the February backgrounder, is that the forecast adjustment had been used to balance the risks the government sought to the private sector outlook, and not so much as prudent budgeting. If the government's decision is to make this adjustment to increase the degree of prudence, or ensure with a high degree of probability achieving its target, then it can be transparent and say, “We are making a prudent decision”. In my reading, and doing a word search in the budget document, the word prudent does come up, but not in that context.