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PP RUEHGA RUEHHA RUEHMT RUEHQU RUEHVC
DE RUEHOT #0756/01 2712120
ZNR UUUUU ZZH
P 282120Z SEP 09
FM AMEMBASSY OTTAWA
TO RUEHC/SECSTATE WASHDC PRIORITY 9891
INFO RHEHAAA/WHITE HOUSE WASHDC
RUEAIIA/CIA WASHDC
RHEHNSC/NSC WASHDC
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASH DC
RUCNCAN/ALL CANADIAN POSTS COLLECTIVE

UNCLAS SECTION 01 OF 02 OTTAWA 000756 
 
STATE FOR E, EB/DCT,  WHA/CAN 
 
STATE PASS USTR (SULLIVAN) 
 
COMMERCE FOR ITA/MAC (WORD) 
 
TREASURY FOR IA (NEPHEW) 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD EINV EIND PREL PGOV CA
SUBJECT: Canadian Finance Minister Announces Canadian Economy 
Restored to Pre-Recession Growth and Deficit Levels by 2015 
 
Ref:   Ottawa 0116 
 
SENSITIVE BUT UNCLASSIFIED.  PLEASE PROTECT ACCORDINGLY 
 
¶1. (SBU) Summary:  The Canadian government's plan to eliminate the 
nation's budget deficit and return to pre-recession growth rates by 
2015 without cutting spending or raising taxes is leaving some 
economists scratching their heads.  Ottawa observers suggest that 
the optimistic forecast is an attempt by the Harper government to 
bolster support for its economic recovery plan in anticipation of a 
possible autumn election.  End summary. 
 
Canada's Milder Recession 
------------------------- 
 
¶2.  (U) Canadian Finance Minister Jim Flaherty released the 
government's quarterly Update of Economic and Fiscal Projections on 
September 10, 2009.  The report contained revised growth, debt and 
inflation projects based on the government's own analyses and 
combined with those of private (mostly banking) sector economists. 
The government predicts a near-complete economic recovery within 
five years. 
 
¶3.  (SBU) Since the onset of the global recession last autumn, both 
the Finance Ministry and the Central Bank have presented very 
optimistic assessments of the state of Canada's economy (reftel). 
These estimates have regularly been revised downward shortly after 
their release but also after media attention has moved on to other 
issues.  Ottawa watchers speculate that the government's 
effervescent forecasting has been meant to bolster public and 
investor confidence.  The impact of the recession has been less 
severe in Canada because of the strength of the financial and energy 
sectors and limited exposure to sub-prime credit instruments. 
Canada's relatively strong position among the G8 economies has 
helped the government to justify its 'glass half-full' messaging 
even during the worst days of the economic crisis. To be fair, in 
the early-mid stages of the recession, it was difficult for 
policymakers here (or anywhere) to make accurate near-term 
predictions; in Canada, when they did do so, they adopted the rosier 
possible outcomes. 
 
Growth and Fiscal Predictions 
----------------------------- 
 
¶4.  (U) In February, Bank of Canada Governor Mark Carney forecast a 
1.2 percent contraction of the Canadian economy in 2009 followed by 
a 3.8 percent rebound in 2010. By July, the government's estimates 
of the recession's magnitude nearly doubled for 2009 to 2.3 percent. 
 Similarly the hopes for growth in 2010 were scaled back to 3.0 
percent.  (Private sector forecasters are suggesting that Canada 
should expect somewhere in the region of 2.5 percent growth in 
2010).  The Central Bank also predicted in July that economic growth 
in Canada would turn positive in the third quarter of 2009. Right on 
schedule, Prime Minister Harper announced on September 20 that the 
recession had technically ended.  However, he warned that the 
recovery was fragile while unemployment remains at its highest 
levels since 1998 at 8.7 percent. 
 
¶5.  (U) On the fiscal side, the government now predicts that the 
budget deficit will peak in 2010 at C$55.9 billion and then decrease 
incrementally to around C$5.2 billion in 2014 (disappearing entirely 
in 2015).  Minister Flaherty notes that with overall government 
spending estimated at about C$300 billion in 2014, C$5.2 will be a 
Qspending estimated at about C$300 billion in 2014, C$5.2 will be a 
modest challenge to deal with in the overall context.  Comment: The 
last time the budget was in deficit was in 1997 and Canadians are 
wary about returning to a period of persistent deficits that could 
affect national credit status.  End comment. 
 
¶6.  (U) While growth rates and the deficit are predicted to return 
to pre-recession levels by 2015, the lingering legacy of the 
economic crisis will be an increased national debt - estimated to 
climb from C$464 billion in 2009 to C$628 billion in 2014, if 
government forecasts are correct. 
 
Econo-magic 
----------- 
¶7.  (SBU) The government plans a six-year recovery period for the 
 
OTTAWA 00000756  002 OF 002 
 
 
Canadian economy without raising taxes or cutting program spending. 
Given that these statements were made just prior to a critical vote 
in the Canadian Parliament that could have defeated the Harper 
government, EMIN sought the views of economists outside of the 
Finance Ministry for an alternative assessment of the government's 
predictions. The two economists (one from a government crown 
corporation and the other from an Ottawa-based think tank) said it 
was their understanding that the Prime Minister's advisors had 
instructed Finance officials to construct a scenario in which the 
deficit could be eliminated without taxes or cutting spending.  To 
achieve this, Finance Canada economists aggregated a number of 
best-case projections for how the deficit could be eroded through a 
combination of inflation and increased tax revenues generated 
through economic expansion.  While the resulting analysis provided 
the Prime Minister with the economic story he was after, EMIN's 
contacts were skeptical about the government's capacity to deliver 
on its promises.