Economy to 'stagnate,' federal deficit expected to balloon to $46.5B this year: PBO

The parliamentary budget officer says higher interest rates will lead the economy to stagnate in the second half of the year and the federal deficit will rise significantly this fiscal year.

The PBO released its economic and fiscal outlook today, providing updated projections for the economy and federal finances as high interest rates weigh on growth.

The budget officer also says it expects consumer spending to remain weak in the second half of 2023 and throughout the first half of 2024.

Faced with slower growth in government revenues and higher expenses, the federal deficit is projected to rise to $46.5 billion in 2023-24, up from an estimated $38.7 billion for 2022-23.

The PBO assumes the Bank of Canada will hold its key interest rate at five per cent and begin cutting rates in April 2024.

Its inflation forecast anticipates a return to two per cent inflation by the end of next year.