Treasury
Canada's Government Continues to Spend in Its Updated Budget, Says Scotiabank
Canada's government tabled its Spring Economic Update on Tuesday, while Prime Minister Mark Carney had mostly scooped the story the day before in announcing the intention to create a sovereign wealth fund with an initial $25 billion capitalization, said Scotiabank.This was largely the extent of the 'investment' agenda in this update, with net incremental capital outlays otherwise amounting to $1 billion over the horizon, noted the bank.Much of the anticipated fiscal windfall -- at a "sizeable" $60.3 billion -- was ploughed back into an additional $54.5 billion in spending. The picture is somewhat muddled with "new measures" (a net $37.5 billion) encompassing known items such as the groceries benefit and the fuel tax suspension, while "policies since Budget 2025" at $17.0 billion appear as a dizzying list of departmental spending extensions and adjustments in an annex, stated Scotiabank.The update estimates the FY26 deficit came in substantially lower -- at $66.9 billion versus the earlier-projected $78.3 billion, but deficits in trailing years are otherwise near-identical to earlier projections after new spending is folded in. Marginal improvements come from a stronger gross domestic product profile over the horizon.The net debt profile is on a modestly faster pace of descent owing to lower debt levels as well as a stronger GDP denominator, pointed out the bank.The growth impact of new measures is minimal in the near-term, as supports were known heading into the budget. The cumulative tally announced in the past six months is growing though -- at almost $145 billion in federal fiscal support -- but much still hinges on delivery, added Scotiabank.The Bank of Canada won't be tearing up its playbook for its policy decision on Wednesday, but it will likely sharpen its upside narrative against an otherwise volatile backdrop, according to Scotiabank. While a hold is widely expected, the update reinforces Scotiabank Economics' view that the next move is likely a hike -- perhaps sooner rather than later.Otherwise, the update will be a footnote in a crowded week, it said. Canada's investment agenda is gaining traction, but it's a long-run play with markets likely pricing the potential payoff only gradually.Execution and geopolitical risk will dominate for now. Scotiabank looks for greater clarity -- directionally at least -- on both fronts come budget time this Fall.Tuesday, the bank got clarity that the government is comfortable continuing to spend.
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