Canada's Fiscal Spending Moves Out Of Step With Overheating Economy

• Canadian Finance Minister Chrystia Freeland's promise of a fiscally prudent budget in the face of high inflation has disappointed some strategists who had hoped for spending restraint from the Liberal government.
• Increased spending in the budget leaves the government with less in reserve to deal with a possible economic downturn and it could forestall a shift to interest rate cuts by the Bank of Canada, analysts said.
• The worry is that the deficit, estimated at C$43Bn ($31.7Bn) in 2022-23, or 1.5% of GDP, is wider than it should be at this point of the economic cycle, with the economy running hot, unemployment at a near record low and inflation elevated, analysts said.
• Earlier this month, the central bank paused its tightening campaign after eight consecutive rate hikes to tackle price pressures. Money markets are betting it will shift to cutting interest rates over the coming months after recent stress in the global banking sector raised prospects for a credit crunch.

(Source: Reuters)