Flaherty prepares for March 29 Federal Budget

With the federal budget scheduled for Thursday, March 29, Federal Finance Minister Jim Flaherty recently met with Canada's leading private sector forecasters to gather their views on Canada's economic prospects. The Department of Finance bases its economic forecast for budget-planning purposes on the average of private sector economic forecasts.

But Flaherty came away from the meeting empty-handed as economists wanted time to digest Statistics Canada's announcement of real gross domestic product (GDP) numbers on March 2. Generally speaking, GDP rose 0.4% in December, good news after a 0.1% dip in November. On an annualized basis the economy expanded by 1.8% in the final quarter of 2011, taking the average growth for all of 2011 to 2.5%. The other surprise was StatsCan's third-quarter revision of GDP growth ó upward to 4.2% from 3.5%.

"Consumer spending and exports contributed the most to fourth-quarter GDP growth,î StatsCan reported in its release.

Generally speaking, bank economists are feeling optimistic about GDP numbers, even if they didn't give Flaherty a takeaway number. U.S growth registered 3% in the fourth quarter and the recession in Europe appears to be milder than expected ó all good news for Canada. "The monthly gain provides a nice hand‐off for GDP growth in first quarter 2012,î Bank of Montreal economist Doug Porter wrote in a report, "with the economy likely on track for something close to 2% again this quarter and for all of 2012.î

TD Bank Group economist Sonya Gulati wrote in her report: "The headline result was below our expectations of 2.3%, but if we exclude the upward revisions Statistics Canada made to the quarter three data, the economy would have grown at roughly 2.5% in quarter four. This hand-off and the recent developments abroad will provide positive momentum for the Canadian economy this year. As a result, we will be modestly lifting Canadian GDP growth to just above 2% in 2012 in our next forecasting cycle, up from the 1.7% we had thought in December.î