Canada | Fiscal stimulus primed to boost the post-Covid economy

The Canadian economy will get a significant fiscal stimulus boost as it emerges from the coronavirus crisis. We see the direct effects of the country’s 2021 federal budget measures and indirect spill overs from US President Joe Biden’s proposed American Jobs Plan boosting GDP growth in Canada by 0.6ppts to 6.8% in 2021 and by another 0.9ppts to 3.4% in 2022.

What you will learn:

• The newly announced federal budget introduced a wide range of largely deficit-financed programs totalling C$143bn (6.5% of GDP) over the next five years and a permanent net spending increase of C$14bn annually beginning in 2026. 
• Biden’s $2.7tn American Jobs Plan (AJP) would indirectly give the Canadian economy a lift, primarily via higher exports to the US. 
• We think this new fiscal stimulus will eliminate slack in the economy and lead to a positive output gap that persists into the medium term.