04/20/2015 12:56 EDT | Updated 06/20/2015 05:59 EDT

Canada's $2-Trillion Economy: Budget Forecasts Will Show When We'll Hit This Milestone


OTTAWA - Buried beneath the spending promises, fiscal forecasts and political posturing in Tuesday's budget will be the latest read on a little-known yet rapidly approaching milestone: the timing of Canada's $2-trillion economy.

The budget will contain updated projections by private-sector economists on when the country's nominal gross domestic product will eclipse $2 trillion for the first time.

Experts are quick to dismiss the threshold as merely a number with no economic implications. But any postponement of past predictions about the timing of the breakthrough could provide another illustration of just how much the oil-price plunge has slowed the economy.

To be sure, count the federal government among those who have been keeping its eye on when the economy might hit the benchmark.

A document obtained by The Canadian Press shows Finance Minister Joe Oliver was informed last fall that Canada would likely reach the $2-trillion level in late 2014 or within the first three months of 2015.

But the Oct. 1 memo, authored by deputy finance minister Paul Rochon, came before the steepest slide of a global oil slump that cut crude prices in half between last summer and mid-winter.

The impact of the unexpected drop forced Oliver to delay his spring budget and led to a downgraded prediction last week from Bank of Canada governor Stephen Poloz, who anticipates "zero per cent" growth for the first quarter of 2015.

Poloz has warned the economic data for those three months will look "atrocious."

The country's nominal GDP, viewed by the Finance Department as "the single broadest indicator of the tax base," came in at $1.993 trillion for the last three months of 2014, Statistics Canada said.

That fourth-quarter tally, the agency said, was unchanged after advancing 1.1 per cent the previous quarter, making it the slowest growth since the second quarter of 2009 — during the recession.

The memo to Oliver, obtained under the Access to Information Act, cautioned that nominal GDP forecasts are "uncertain."

"If growth is weaker than expected, nominal GDP growth could reach the $2-trillion level in the second quarter of 2015," it said.

The document says nominal GDP represents the "total value of what is produced in the economy in today's dollars" and is an "appropriate indicator" for measuring the size of the economy.

The budget will include fresh private-sector economic outlooks that will update nominal GDP forecasts, "the level of which will likely surpass $2 trillion in the coming quarters," Finance spokeswoman Stephanie Rubec wrote in an email.

When it comes to the significance of hitting the $2-trillion mark, experts describe it as essentially irrelevant.

A former official in the Finance Department recalled the government's reaction when the country reached the $1-trillion plateau about a decade ago.

"It was a bit of a milestone, but I don't think we went and had a party that night to celebrate," said Peter DeVries, at the time a senior adviser for the deputy finance minister.

"It's a neat little story... but it doesn't mean much."

Governments, however, are interested in nominal GDP because if it's strong, tax revenues will be healthy, too, DeVries added.

He said nominal GDP is calculated from things like wages, salaries, supplementary income, corporate profits and investment income — all in current dollar terms.

Regardless of when Canada hits $2 trillion, it will still remain far behind the neighbouring United States, where nominal GDP was nearing $17 trillion in 2013, the World Bank says.

Economist Don Drummond, who worked at the Finance Department between 1977 and 2000, called attaining the $2-trillion mark "just a number" and that the vast majority of Canadians wouldn't care.

"And they would be completely justified in that," Drummond wrote in an email.

"It means nothing."

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