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Friday, June 21, 2024

Canada’s $23.6 Billion Deficit from $5.5 Billion last year

The Canadian federal government reported a budgetary deficit of $23.6 billion for the first nine months of the 2023-24 fiscal year. This figure contrasts with the $5.5 billion deficit recorded for the same period last year.

Fiscal Dynamics

The period from April to December witnessed government revenue reaching $318.1 billion. This marks an increase from $310.0 billion in the previous year. Higher personal income tax revenue, alongside other non-tax revenue and taxes and duties, fueled this uptick. Despite this increase, a significant surge in program expenses—excluding net losses—to $301.0 billion from $282.4 billion shows the government’s elevated spending across all major categories.

Public debt charges have increased to $35.1 billion, up from $25.8 billion. This is due to the rising interest rates that impact the cost of managing national debt. Additionally, net losses are at $5.7 billion, decreasing from $7.4 billion in the prior year.

Monetary Policy Context

The broader global monetary policy links to Canada’s fiscal policy. Despite the global economy showing signs of slowing down, it has exhibited more resilience than anticipated, with the U.S. economy displaying strength. However, growth is expected to moderate, with inflation gradually declining toward central bank targets.

In Canada, the situation mirrors the global trend with Consumer Price Index (CPI) inflation remaining above the desirable levels but showing signs of easing. The BoC’s monetary policy has been effective in moderating spending and alleviating price pressures, although shelter price inflation continues to exert upward pressure. Economic growth stalled in mid-2023, leading to a scenario where supply has caught up with demand, indicating a modest excess supply in the economy. A softening labor market has accompanied this, although wage growth remains high at 4% to 5%.

The BoC projects weak economic activity in the early part of 2024, with a gradual pickup that will see GDP growth just under 1%. The lingering effects of past interest rate hikes constrain household spending and business investment, while soft foreign demand impacts export growth. Government spending is set to play an important role in stimulating growth through 2024, with GDP growth projected to rise to about 2½% in 2025.

Historical Perspective on Monetary Policy

Canada’s approach to monetary policy has changed over the years, adapting to changing economic conditions and challenges. The BoC has played an important role in shaping the country’s economic stability from the inflation-targeting regime introduced in the early 1990s to the more recent emphasis on flexible exchange rates and inflation control.

Monetary policy has historically been a tool for managing economic cycles, controlling inflation, and influencing economic growth. The current scenario, shown by a gradual easing of inflation and modest economic growth, reflects the impact of past policy decisions and the ongoing efforts to control their economy.

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Publisher and editor of LJLNews. I am a Stock Market enthusiast, with an interest for politics. I hope you enjoy reading the articles! Contact me at: Lazaruslucas@ljlnews.com

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