Federal government belt-tightening will hurt Canada's real GDP growth in 2013, according to a new CIBC report.
The bank took issue with a Bank of Canada forecast that the federal government would boost the national GDP next year.
"Just as we warned that the [Bank of Canada] was too optimistic in its initial 2012 call, its 2013 forecast also looks to be counting its government spending chickens well before they will be hatched," said CIBC chief economist Avery Shenfeld.
He said the bank examined projections including the federal budget and those of the four largest provinces, stripped out transfers to households and capital amortizations and added back capital spending.
"Our analysis points to yet another drop in real expenditures, with no major offset from planned tax reductions," he said.
"We estimate that real government spending will decline by 0.9% in 2013/14, only slightly less than the projected dip in the current fiscal year."
He said that amounts to a 0.2 percentage point drag on real GDP growth, and added that this figure contrasts with the 0.3% boost to growth predicted by the Bank of Canada.
"The result is that the [Bank of Canada]'s forecast could be about 0.5 percentage points too high – enough to make the difference between growth being above potential, requiring interest rate hikes, or as in our forecast of 2.0% growth next year, not fast enough to narrow the output gap and call for monetary tightening."
