-- The government of Canada on Tuesday released its spring economic update, with the revised projections for the fiscal deficit in 2025-26 down about $2 billion to around $67 billion, or roughly 2.1% of gross domestic product relative to the 2.5% prior, said UBS.
That still implies a widening of the deficit of 0.9 percentage point of GDP relative to the 2024-25 fiscal year and the deficit is expected to remain wide at 1.9% of GDP in fiscal year 2026-27 and 1.8% in FY 2027-28, writes the bank in a note to clients.
The better deficit outlook for FY2025-26 reflects a combination of stronger growth and revenues on the basis of higher oil prices, but also a reassessment of the rollout expected from several programs in the coming years, stated UBS.
This includes revised allowances for liabilities for natural disasters, and revised timing for uptake of Clean Economy investment tax credits and electric vehicle battery manufacturing supports.
With the slower expected spend out, the bank marks down its expectation for support from fiscal this year by a tenth, and adds a little into next year and 2028. This leaves the UBS expectations for real GDP growth at 1.5% for this year, 1.7% in 2027 and 1.8% in 2028.
Fiscal actions since Budget 2025 and incorporating the Spring Economic Update are estimated to cost about $55 billion over the next six years, with around $38 billion of this coming from this week's update.
The majority of the new spending is roughly $25 billion over the next three years on a cash basis, earmarked to launch a Canadian sovereign wealth fund -- the "Canada Strong Fund" -- and a smaller roughly $6 billion allocated to boost the skills of young workers and to support building out the supply of housing.