Stimulus Spending Won't Be As Good For Canada's Economy As The Liberals Said: TD

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Stimulus spending will give Canada a boost over the next two years; it just won't be as good for the economy as the government said it would be.

So says a quarterly forecast by TD Economics released Thursday.

The bank was generally complimentary of the Liberal government's spending plans, but it was decidedly less optimistic about outcomes than the feds.

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Finance Minister Bill Morneau delivers the federal budget in the House of Commons. (Photo: CP)

When Liberals unveiled their budget in March, the federal Finance Department estimated that its spending would add 0.5 per cent to Canada's GDP this year, and one per cent from 2017 to 2018, iPolitics reported.

And while the TD report admits that government spending should support GDP growth of 1.8 per cent next year and 1.7 per cent in 2018, it's only likely to add 0.3 per cent and 0.2 per cent of economic growth in each year, respectively.

The economy is expected to grow by a "weak" 1.1 per cent this year, it added.

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But it's not as though stimulus spending won't help the economy at all.

TD said the first payments from the Canada Child Benefit (CCB) were handed out in July, and that they should provide a "modest one-time boost to household spending in the third quarter."

Nevertheless, other factors could hold back Canadian spending, such as a "lack of pent-up demand, slowing housing activity and high household indebtedness."

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Homes in Richmond, B.C., a Vancouver suburb. (Photo: Getty Images)

The housing slowdown was largely attributed to activity in Vancouver, where sales peaked earlier this year before seeing dramatic drops in subsequent months.

And all of that was before British Columbia slapped a 15 per cent property transfer tax on foreign buyers.

TD initially expected the average Vancouver home price to fall by 10 per cent. But the market has already exceeded those expectations, dropping by 18.1 per cent month-over-month.

The bank now projects average Vancouver prices to fall from current levels by 10 to 15 per cent early next year, similar to a correction that happened in 2010.

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Homes in Toronto. (Photo: Peter Spiro/Getty Images)

TD is more optimistic about Toronto, saying it's likely to see a bump in housing activity "as investor demand moves from Vancouver."

"But, it too is likely to show the markings of cooling by late next year in response to eroding affordability and some modest upward pressure on borrowing rates," the report said.

A TD report released last year showed that homeowner spending rises as much as five cents for every dollar that their home's value goes up.

Price declines could have the opposite effect, it said.

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