OTTAWA—Canadians can expect ballooning deficits and a sharp rise in the national unemployment rate as governments attempt to manage the economic fallout from the COVID-19 pandemic, according to a new report by the independent Parliamentary Budget Officer.

Under the PBO’s modelling, Canada’s real GDP growth could contract by 5.1 per cent in 2020 — the “weakest (year) on record since 1962,” the office said.

The PBO stressed that given the extreme uncertainty in the world right now, their report is just a scenario and not a prediction of what could happen.

But it makes clear that Canadians will have to hunker down for the long haul during the global health and economic crisis.

“We assume that the current COVID-19 social distancing and self-isolation measures will remain in place through August, lasting roughly six months in total,” the office said.

“Based on our economic scenario, the (federal) budget deficit would increase to $26.7 billion in 2019-20 and then to $112.7 billion in 2020-21.”

The PBO’s analysis also assumes that the world’s oil producers fail to reach an agreement to limit production and stabilize world oil prices. Before the extent of COVID-19’s impact on the economy was known, an oil price war between Saudi Arabia and Russia already threatened Canadian governments’ budgetary plans, particularly in Alberta.

But the PBO noted that the federal government’s fiscal position before the crisis was healthy, and the government has room to maneuver as businesses and citizens look for financial relief from the government.

“While additional fiscal measures will likely be required to support the economy in the coming months, the government’s balance sheet prior to these shocks was healthy … Even after additional support measures are provided, fiscal stimulus measures may be required to ensure that the economy reaches lift-off speed especially if consumer and business behaviour does not quickly revert back to ‘normal’ conditions,” the report noted.

“Given credit market access at historically low rates, and looking to historical experience, (the analysis) suggests that the government could undertake additional significant borrowing if required.”

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