THE WALL STREET JOURNAL. Wednesday, December 2, 2020 |A

on Monday said it projected a

budget deficit in the year end-

ing March 30 to jump to at

least C$381.6 billion, or 17.5% of

gross domestic product, versus

a deficit of C$39.39 billion, or

1.7% of GDP, in the previous 12-

month period. The U.S. budget

deficit tripled during the year

that ended Sept. 30, to reach

$3.1 trillion, or the equivalent

of 16.1% of economic output.

The deficit could swell to

near C$400 billion because of

deteriorating economic condi-

tions related to a second wave

of Covid-19 infections. Canada

anticipates the deficit to nar-

row next fiscal year to between

C$121 billion and C$166 billion,

depending on how much new

spending is deployed.

Canada has recovered about

80% of the jobs lost in March

and April because of the virus,

whereas the U.S. has regained

just over half of employees

shed. Growth is expected to

grind to a halt in the final three

months of 2020 as restrictions

from all levels of Canadian

government will surge to

roughly 115% of GDP this year

from 89% in 2019, the IMF

said. The debt-to-GDP ratio

this year in the U.S. is forecast

to reach 131%; 108% in the

U.K.; and 73% in Germany, ac-

cording to the IMF.

When downgrading the coun-

try’s rating to double-A-plus in

late June from triple-A, Fitch

re-emerged to deal with a sec-

ond wave of Covid-19 infections.

The federal government’s

debt is also set to surpass C$

trillion for the first time this

year, or 50% of GDP, and debt

Changeinfiscalbalanceasa

percentageofGDP

Source: International Monetary Fund

Note: Discretionary fiscal support is measured

as the change in the cyclically adjusted primary

balance; nondiscretionary fiscal support is the

residual in percentage points.

–20 pct. pts. –10 0

Canada

U.K.

U.S.

Italy

Japan

Germany

France

Discretionary

Nondiscretionary

(including automatic stabilizers)

GDP Jumped 40.5%

In Third Quarter

OTTAWA—Canada ended

two straight quarters of virus-

fueled declines in output with

a surge in the third quarter,

with household spending driv-

ing growth.

The quarterly gain, however,

came in well short of market

expectations, and indicates the

road to a full recovery will be

long and uneven, as the Bank

of Canada has warned.

The central bank has sig-

naled it will keep its bench-

mark interest rate, which is at

near zero, unchanged until

2023, and Canada’s federal

government has pledged this

week another large dollop of

fiscal firepower to juice the

economy.

Early indicators suggest

fourth-quarter output will be

weak, as a second wave of

Covid-19 infections force au-

thorities to impose new eco-

nomic restrictions.

Canada’s gross domestic

product, the broadest measure

of goods and services produced

in the economy, surged at a

40.5% annualized rate in the

third quarter to 2 trillion Cana-

dian dollars, the equivalent of

US$1.54 trillion, Statistics Can-

ada said on Tuesday.

—Paul Vieira

Learn more at

habitat.org.

every

one

deserves a decent

place to live.

alexa

3NYP

FREE INSIDE THE

OUT

TODAY

150 +golden treasures for

eeveryone on your list!veryoneonyourlist!

HHOLIDAYOLIDAY

GGIFTIFT

GGUIDEUIDE

WORLD NEWS

Ratings cited a steep rise in gov-

ernment debt and skepticism

about the ability among political

leaders to stabilize debt growth

after the pandemic passes.

Carolyn Wilkins, the second-

highest-ranking official at the

Bank of Canada, said fiscal pol-

icy is a powerful tool with inter-

est rates near zero and business

activity constrained. Without

massive fiscal outlays, “you

wouldn’t be seeing the recovery

we’re seeing now,” she said.

Deputy Prime Minister and

Finance Minister Chrystia

Freeland on Monday said the

fiscal taps will remain wide

open for the foreseeable fu-

ture. She said in an annual fall

economic update that the gov-

ernment is set to spend up to

C$100 billion over a three-year

period starting in 2021 to help

fortify the recovery from the

pandemic. Stimulus spending

would cease only when bench-

marks related to employment

data were met, she said.

“Canadians understand that

this crisis demands targeted,

time-limited support to keep

people and businesses afloat

and to build our way out of the

Covid-19 recession,” she said.

Ms. Freeland said the govern-

ment would introduce rules to

stabilize debt growth but only

after the recovery is complete.

Mr. Jean, of Desjardins Se-

curities, said the government

is betting the massive fiscal

outlays will prevent a catas-

trophe in household and cor-

porate bankruptcies.

Yet David Rosenberg, econ-

omist and head of Toronto-

based consulting firm Rosen-

berg Research, pointed out

that combining mounting gov-

ernment debt and what house-

holds and nonfinancial corpo-

rations owe puts Canada’s

total debt-to-GDP ratio at

more than 400%—ahead of the

Americans and Chinese, but on

par with Italy and Greece. The

latter two countries dealt with

fiscal crises last decade.

“The only way that Can-

ada’s aggregate debt ratio is

sustainable is if we just have

interest rates close to zero in

perpetuity,” he said.

OTTAWA—Canada’s deficit
is growing at the fastest rate
among developed nations as it
seeks to prop up its economy
during the Covid-19 pandemic.
Canadian officials are bet-
ting the aggressive approach
will pay off, pointing to the
number of jobs recovered, and
argue that the country can af-
ford to pour money into the
economy while borrowing
costs are historically low. But
some economists warn the
heavy spending could lead to a
fiscal crisis, and one major
ratings firm has stripped the
country of its triple-A rating.
Canada isn’t alone in its
spending spree: The Interna-
tional Monetary Fund esti-
mates governments around the
world have doled out $12 tril-
lion to minimize the economic
damage from restrictions in
place to halt transmission of
Covid-19. Canada’s virus-related
spending, the bulk of which
originates with the federal gov-
ernment, has totaled about 382
billion Canadian dollars, the
equivalent of US$294 billion,
and accounts for roughly 19%
of Canada’s economic output.
Yet IMF data indicate Can-
ada’s fiscal position during the
pandemic—incorporating all
levels of government—has de-
teriorated at the fastest pace
among the major economies in
the Group of 20 industrialized
countries as it seeks to keep
the economy pumping.
“Canada could come off as
heroic if this spending is done
right,” said Jimmy Jean, a
strategist at Desjardins Securi-
ties in Montreal. “If Canada
fails, all the emergency spend-
ing might have been done in
vain because we won’t have
the capacity to power the
post-vaccine recovery.”
The Canadian government

BYPAULVIEIRA
ANDKIMMACKRAEL

Canada Spends Its Way Into Huge Deficit

Government officials

hope aggressive steps

to prop up economy in

pandemic will pay off

A closed furniture store in Toronto reflects the potential economic toll in coming months from new restrictions aimed at stemming Covid-19.

CHRIS HELGREN/REUTERS

NY