Cdn Parliamentary Budg Officr Sees Better Budg Outlk Than Gov

--BOC To Keep Rates Unch In Dec, Then Hike 25bp Each Quarter to 3.0% End 2019

By Yali N'Diaye

     OTTAWA (MNI) - The Canadian Parliamentary Budget Officer's latest fiscal

update showed a better budget outlook through 2023 than the federal government

does, although it estimated Tuesday that the current fiscal year would end with

a deficit of C$20.2 billion, slightly wider than the C$19.9 billion gap expected

by the government earlier this month.

     Among its assumptions, the PBO sees monetary policy on hold until January

2018, meaning the BOC should keep its overnight rate target unchanged at 1.0% on

December 6.

     "As core inflation continues to firm through 2018, we project that the Bank

of Canada will gradually increase its policy rate by 25 basis points each

quarter until the policy rate is returned to its (nominal) neutral level of 3.0

per cent by the end of 2019," the PBO Economic and Fiscal Outlook said.

     The PBO's real GDP growth assumption matches the government's and the BOC's

for 2017 at 3.1%, and also sees a slowdown through 2019. However, the PBO is a

bit less optimistic for 2018, as it assumes a 1.9% GDP growth, compared to 2.1%

for both the government budget and the BOC.

     For 2019, on the other hand, the PBO is the most optimistic, with an

anticipated GDP growth of 1.8%, compared to 1.6% for the government (based on

the average private sector forecasts) and 1.5% for the BOC.

     "PBO's economic outlook reflects the view that possible upside and downside

outcomes are, broadly speaking, equally likely," the report said. Weaker

business investment is the main downside risk, while households spending more

than expected is the biggest upside risk.

     With the exception of fiscal year 2017-2018, the PBO's budget prospects are

better than those of the government, with the deficit being smaller every year

to reach C$12.5 billion in FY 2021-2022, a year earlier than expected by the

government.

     The budget gap should narrow to C$9.9 billion by 2023, according to the

PBO.

     The federal debt-to-GDP ratio is expected to decline from 30.5% in

FY2017-2018 to 27.8% in 2023, also reflecting a stronger improvement than the

government expects. The latter sees the ratio declining to 28.5% by 2023.

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com