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Economic Viewpoint

Federal Fiscal Update Preview: Federal Deficits are Smaller Than Expected but Don’t Get Used to It

October 28, 2022
Randall Bartlett
Senior Director of Canadian Economics

The federal deficit was much smaller last year than expected in Budget 2022. High inflation, a tight labour market and a better starting point are expected to boost revenues and reduce the deficit significantly again this year. However, we are forecasting a return to larger deficits starting next year, primarily because of our outlook for a recession in Canada in 2023. Government of Canada borrowing costs are also set to rise sharply but to remain low by historical standards. Despite still elevated deficits, the federal debt-to-GDP ratio is likely to fall much more quickly than expected in Budget 2022. But the risks to the federal fiscal outlook are tilted toward larger, not smaller, deficits.