Manulife Investment Management published its latest commentary on March 29, this time to discuss Canada’s 2023 federal budget. In it the managers examine the federal government’s clean energy investment plans, housing and the impact of larger deficits being carried into the future.
“As it is often said in economics, policymakers face unlimited needs under constrained resources,” they write. In housing, they say with interest rates at their highest levels since 2007, housing has rarely been this unaffordable to the average Canadian. They say new spending in the budget needed to be introduced due to economic and political imperatives, but add that “other important items such as helping Canadians face inflation or lodging issues have taken a lesser importance.”
They add that chronic undersupply remains an issue. “An update or even an expansion of measures to incentivise home construction such as Budget 2022 Rapid Housing Initiative would have been valuable.”
The bulk of the budget’s spending, they note, “goes to health care and an ambitious plan to develop clean energy and tackle climate change.”
They say Canada is doing this because it needed to respond to the massive 2022 United States Inflation Reduction Act, in order to attract private investment and develop the clean technologies of the future.
“Perhaps the most ambitious part of the 2023 budget is the clean energy plan. The goal is to attract private investment in clean technology and electricity, making sure Canada is not left behind.”
The commentary concludes by addressing the larger-than-expected deficit which will exist going forward with no clear plan to eliminate it. (Although they note that the country’s debt ratio will remain below that of most other developed nations.)
“We see downside risks to the economic outlook,” they conclude, “with the most likely scenario falling in between the government’s base case and pessimistic case (between 0.3 per cent and -0.2 per cent real GDP growth in 2023).”
