11/01/2011 03:13 EDT | Updated 01/01/2012 05:12 EST

Parliamentary budget officer says economic growth to slow next year

OTTAWA - The parliamentary budget officer has joined the growing chorus predicting slower growth for Canada next year with one of the more pessimistic outlooks for the economy, due to the turmoil over European government debt.

The report by Kevin Page's office said growth this year should hit 2.2 per cent, which jibes with Finance Minister Jim Flaherty's last forecast, however Page's estimate was well below the minister's forecast of 2.1 per cent for 2012.

In the economic outlook released Tuesday, the PBO report predicted that real GDP will expand by only 1.5 per cent next year and 2.1 per cent in 2013.

"The weaker outlook for global growth is primarily the result of growing concerns related to sovereign debt in the euro zone and has led to a significant reduction in commodity prices," the report said.

"At the same time, a number of economic indicators released since May have been weaker than expected including U.S. real GDP growth in the first and second quarters of the year, as well as downward revisions to previous quarters."

The PBO forecast follows one by the Bank of Canada last week that predicted the economy will advance 2.1 per cent this year, soften to 1.9 per cent in 2012 and pick up speed to 2.9 per cent in 2013.

The forecast also suggested, as Page has done before, that it's unlikely Flaherty can hit his target of a balanced federal budget by 2014-15 and predicts a shortfall of $18.7 billion in that year.

The PBO report put the odds of a balanced budget at 10 per cent for 2014-15, 25 per cent in 2015-16 and 40 per cent at 2016-17.

Flaherty has hinted in recent days that the government might miss the target.

Last week, he did not commit to the four-year target when asked, but insisted Ottawa remained on track to eliminate the deficit "in the medium term."

Flaherty is expected to issue a fall fiscal update later this month that incorporates a new consensus among economists that shaved seven-tenths of a point off the previous assumptions for gross domestic product growth.

Finance spokesman Chisholm Pothier noted Tuesday that Page's estimates have been less accurate than the government's numbers in the past.

"The Bank of Canada, IMF, and other organizations have also made revisions in their projections lately as well. This reflects weakening outside of Canada — especially in Europe and the United States," Pothier said.

"The minister met with private-sector economists to determine a reasonable forecast in advance of the upcoming fall economic statement. If anyone has any problems with those projections — they should discuss that with the private-sector economists."

The PBO report also projects the unemployment rate will hit eight per cent next year and in 2013, up from the 7.1 per cent recorded in September, and predicted that the Bank of Canada will hold its key interest rate at one per cent until the third quarter of 2013.

Statistics Canada reported last month that the number of jobs in Canada rose by 61,000 in September, a move that pushed the unemployment down by 0.2 percentage points to its lowest level since December 2008.

However, even with the drop, there were still over 1.3 million people on the unemployment rolls. By comparison, there were 1.5 million out of work when the unemployment rate was last at eight per cent in September 2010.

The unemployment rate hit 8.7 per cent in August 2009 with 1.6 million people looking for work just as the economy was just emerging from the recession.

Statistics Canada is expected to release job numbers for October on Friday.

The consensus expectation by economists is for the unemployment rate to increase to 7.2 per cent and the economy to have created 20,000 jobs last month.

Note to readers: This is a corrected story. An earlier story had the wrong last name "Lynch" attributed to quotes from Kevin Page.