But the minister predicts he's still on track to balance the budget around 2015-16 — in part because of government spending restraint and a "prudence" write-down he built into the March budget.
The minister made the assessment after meeting with private sector economists at his office in Ottawa on Monday. Flaherty said he was told the country's nominal gross domestic product, which includes inflation, will be $21 billion lower than expected this year, and $29 billion lower in each of 2013 and 2014.
TD Bank chief economist Craig Alexander said a rough calculation is that Ottawa's tax receipts will fall about $1.8 billion as a result.
"The good news is that economic growth in Canada continues to be positive if modest and among the strongest in the G7," said Flaherty.
"It's not all doom and gloom. In fact the mood is steady as she goes, stay the course, stay on track to balance the budget in the medium term.
"There are some bright lights in the economy, like the lumber sector, like the auto sector, the financial sector."
The big difference, he said, is that renewed weakness in the global economy has led to a correction in the price of the commodities, such as oil, gas and metals, that Canada sells the world. That translates into less wealth entering the country, lower corporate profits and personal incomes, and finally softer tax revenues.
The minister said commodity prices have been about five per cent below what the March budget had projected.
"That will mean less revenues for the government, but we are already proceeding with our savings (from restraint), so we're still on track to balance the budget in the medium term," he explained.
"What we can control, we are controlling and that is specifically controlling spending."
The new outlook could cause the government to miss the deficit target in the current and next year, although stronger growth in outgoing years is expected to close the gap.
Flaherty said the current conditions are not weak enough to warrant any more spending by the government than planned, arguing that leads to "disaster" of the sort being experienced in Europe and the United States.
The economists' consensus forecast, which will form the basis for the fall update, are a little more positive for real growth than a projection offered by Parliamentary Budget Office Kevin Page earlier Monday.
Page said he expects growth of 1.9 per cent this year, 1.5 next year and two per cent in 2014. The economists place growth at 2.1 per cent this year, 2.0 in 2013 and 2.5 in 2014.
But on nominal growth — which more directly impacts government revenues — the two are remarkably similar, with the PBO estimating the economy will be $22 billion poorer than expected on an annual basis.
Page gave the government a 60 per cent probability of being able to meet its goal of balancing the budget in 2015-16, about three years from now.
"Since budgetary revenues are increasing at a faster pace than total expenses, the budgetary balance improves steadily over the medium term from a deficit of $18.1 billion in 2012-13 to a surplus of $13.8 billion in 2017-18," Page said.
The economists that met with Flaherty also said they believed the government could balance the budget as planned, if their forecasts are correct.
Bank of Montreal economist Doug Porter said there was one other factor impacting the Canadian economy — the hockey strike. He said if it persists, it would shave about one-tenth of a point off real gross domestic product.
Also on HuffPost