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Andrew Kelvin, senior Canada rates strategist at TD Securities, points out that the Canadian Federal Government will release the 2019/20 budget on March 19th and while there hasn’t been much discussion of fiscal stimulus, there are still a few developments worth keeping an eye on.

Key Quotes

“First, with the recent deterioration in economic data, we know that nominal GDP grew more slowly than projected in 2018, and we also look for a slower growth rate in 2019. In level terms, we project that nominal GDP will be revised lower by $29bn in 2019 and $14bn in 2020.”

“The Department of Finance projected revenues at 14.2% of GDP over the forecast horizon in the fiscal update, so the negative revisions to nominal GDP should equate to revenue declines of $4.1bn and $2.0bn, respectively. If we assume no changes in the expenses projections or the $3bn risk buffer, it would imply deficits of roughly $23bn in FY 2019/20 and $20bn in FY 2020/21 – up from $19.6bn and $18.1bn, respectively. While these figures are still just 1% of GDP (roughly speaking), they are probably large enough to keep the government from announcing a material amount of new fiscal stimulus.”

“Judging by most of the chatter in the media, the focus of this budget will be on promoting household affordability for young buyers.”

“While these measures will be supportive for Canadian housing on the margin, they will not be enough to change the broader narrative around the housing market.”