Canada said on Thursday it would run a C$50.2 billion $45.6 billion budget deficit this year and was committed to returning to surplus, but a government document made no mention of an earlier promise to get back in the black by 2013-14.
In a budget update released in front of enthusiastic supporters, Prime Minister Stephen Harper noted that economists now expect gross domestic product to decline by 4.3 percent in nominal terms, compared with a decline of 2.7 percent forecast in the January federal budget.
But the update forecast the economy would start to grow again in the second half of the year, and said there were signs the world economy was stabilizing. "The effects of the recession are beginning to ease," Harper said.
The deficit forecast for the fiscal year to April 2010 was well above the C$33.7 billion predicted in January.
But it came as a relief to economists who had half expected a wider gap in view of the billions of dollars now going to bail out the troubled auto sector and government warnings that the deficit would be "over C$50 billion".
"I am slightly encouraged that it's barely above C$50 billion," said Doug Porter, deputy chief economist at BMO Capital Markets.
"They left it kind of open-ended before, saying it was 'above C$50 billion', and that could have been any number, so the closer it was to C$50 billion the better."
The update did not address Ottawa's earlier promise to get the economy back in the black by 2013-14. A spokesman said the government would address the timing of when the budget would return to surplus in its next quarterly update.
Until the global economic crisis, Canada had been the only member of the Group of Seven industrialized nations to consistently run annual surpluses.
The Conservatives hold only a minority of seats in the House of Commons and must gain the support of at least one opposition party in a vote for its budget update in order to stay in power.
Both the New Democratic Party and the Bloc Quebecois said theywould not support the document, meaning the government could fall if it does not get the support of the main opposition Liberals.
Liberal leader Michael Ignatieff said the party would decide what to do in coming days.
"Would it help Canada get out of a recession to have an election now? That's the key question," Ignatieff told reporters in Montreal.
SEES UNCERTAINTY, BUT NOT INFLATION
The update also pegged Canada's underlying deficit -- excluding one-time costs associated with a big plan to stimulate the economy -- at C$23.2 billion, or about 1.5 percent of gross domestic product.
"That's a strong statement. If it's essentially right then it does drive home the point that the deficit is manageable and it won't be such a tall task to balance the budget down the road," said BMO's Porter.
The outlook also expects the unemployment rate to hit 8.6 percent, rather than the 7.5 percent economists had forecast in January.
Additional writing and reporting by David Ljunggren; editing by Rob Wilson
Dugong 'Wuru' eats from a special lettuce birthday cake during the Sydney Aquarium's 21st birthday celebration. AFP/Greg Wood
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