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OTTAWA — The Liberal government is set to run a $112.7-billion deficit in 2021 as it seeks to combat the economic fallout from the COVID-19 pandemic, according to a new report, with the Canadian economy poised to take a stomach-churning plunge later this year.

A new report by the Parliamentary Budget Office expects the Canadian economy to contract by 25 per cent in the second quarter of 2020. Annual economic growth in 2020 is expected to slide to negative 5.1 per cent — a bigger yearly contraction than the 2008 financial crisis, and the sharpest plunge since the early 1960s. The $112.7-billion deficit is nearly $90 billion higher than earlier estimates.

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Unemployment is expected to rise to 15 per cent, according to PBO projections.

The latest estimates come as governments around the world grapple with the economic turmoil from the pandemic spread of the virus. Finance Minister Bill Morneau has announced $52 billion in aid spending measures for families and businesses as the Canadian economy grinds to a halt, which observers say could climb much higher as employment insurance claims continue to add up.