Fitch Ratings is expressing concern over an increased structural deficit if the Liberal spending program is implemented, and warns that Canada’s credit profile could be impacted.
According to Fitch, Liberal spending plans will increase general government deficits by 0.4% and 0.8% of GDP in FY2025 and FY2026, bringing those deficits to 3.1% and 3.2% of GDP, respectively. Spending will increase by $15.2 billion and $26.2 billion during those years over the previous baseline. Fitch notes that “deficits are now approaching levels that have only been surpassed during the pandemic in 2020 (10.9%) and after the Great Recession in 2009 to 2011 (3.3% to 4.7%).” Deficit spending is likely to raise General Government gross debt to over 90% of GDP. Increased government revenue will only partially offset higher spending, covering 57% and 20% in FY2025 and FY2026.
While Fitch notes Canada still has the credit strength necessary to “weather a fiscal or economic shock,” the Carney Government finds itself in a difficult position. Erratic U.S. trade policy is freezing investment, and Canadian industries are being targeted by the Trump Administration. Weakening trade and supply chain disruptions as a result of U.S. global tariffs will have a further negative impact. Government thus must play a role in supporting economic activity, but doing so generates higher deficits in the short to medium term. The Carney Government will face further potential pressure to spend from the NDP and Bloc. Much will depend on whether Prime Minister Carney’s plan to ‘catalyze’ private sector investment with public funds proves effective.
Spencer Fernando
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