1

December 17, 2008December 17, 2008

Economic and Fiscal UpdateEconomic and Fiscal Update

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Overview

Review forecast in Economic and Fiscal Statement

Changes since the Statement

Implications for the Government’s Fiscal position

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2008 2009 2010 2011 2012 2013

Real GDP growth 0.6 0.3 2.6 3.1 2.9 2.7

GDP inflation 3.8 0.5 1.8 2.2 2.1 2.1

Nominal GDP level ($ billions) 1,603 1,615 1,687 1,779 1,870 1,960

3-month Treasury bill rate 2.4 1.9 2.7 3.9 4.3 4.4

(per cent, unless otherwise indicated)

November Economic Outlook

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Evolution of consensus forecasts since July 2008

Per cent

Blue Chip Consensus Survey, Real GDP Growth Outlook for 2009

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

July2008

Aug2008

Sep2008

Oct2008

Nov2008

Dec2008

July2008

Aug2008

Sep2008

Oct2008

Nov2008

Dec2008

Canada United States

Date of Forecast

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Considerable uncertainty about economic forecast

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

Source: Department of Finance Survey of Private Sector Forecasters.

Per cent

Forecast Distribution of Real GDP Growth in 2009

-3

-2

-1

0

1

2

3Per cent

Forecast Distribution of Nominal GDP Growth in 2009

2009 Average = 0.3%

2009 Average = 0.8%

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Private Sector Surplus projections before Fiscal Actions

2007–08 2008–09 2009–10 2010–11 2011-12 2012-13 2013-14

Conference Board of Canada 9.6 3.3 -2.5 -1.1 -0.4 0.6 3.2

University of Toronto 9.6 4.6 -4.8 -2.9 -1.5 -0.4 0.9

Global Insight 9.6 4.1 -9.7 -7.3 -6.6 -5.4 -3.7

Centre for Spatial Economics 9.6 3.5 -14.2 -9.4 -7.3 -3.8 2.1

Department of Finance 9.6 0.2 -5.9 -3.4 -1.9 1.8 5.7

Parliamentary Budget Officer 9.6 4.0 -3.9 -1.4 1.6 3.0 n/a

($ billions)

Private sector surplus projections (incorporating November 3 Equalization announcement)

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Statement took action to strengthen fiscal and financial positions and launch discussion on forward agenda

• Measures in Statement– Protect structural fiscal position– Reinforce financial system stability

• Set out priorities for forward agenda and consultations in preparation for Budget 2009

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Statement took action to protect structural surplus

2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Budgetary balance before Equalization and Statement Actions 0.2 -7.9 -8.8 -7.7 -4.7 -0.2

Putting Equalization on a Sustainable Growth Path 2.0 5.4 5.8 6.6 5.9

Budgetary balance before Actions in Statement 0.2 -5.9 -3.4 -1.9 1.8 5.7

Effective Management of Government Spending 4.3 1.9 1.6 1.1 1.1

Appropriate Public Sector Compensation 0.6 0.6 0.9 1.0 1.0 1.0

Insured Mortgage Purchase Program 0.2 1.1 0.7 0.4 0.3 0.3

Temporary Reduction in RRIF minimum withdrawals -0.2

Total 0.6 6.0 3.5 3.0 2.4 2.4

Revised budgetary balance 0.8 0.1 0.1 1.1 4.2 8.1

(billions of dollars)

ProjectionSummary of Changes in the Fiscal Outlook Since the February 2008 Budget

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Billions of dollars

Budgetary Balance

Range of economic views

Private Sector - High Scenario

Private Sector – Low Scenario

Average

-15

-10

-5

0

5

10

15

20

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

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Economic Developments Since Statement

• Weaker world economic outlook

• Weaker U.S. economic outlook

• Lower commodity prices

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Per centWorld Real GDP Growth Outlook

The financial crisis has sparked a global recession

-2

0

2

4

6

8

10

12

United States Japan Euro area China World

2007 (actual) 2008 outlook 2009 outlook

Note: World GDP data are calculated on a purchasing power parity basis.Sources: IMF, World Economic Outlook Update (November 2008); Japan Economic and Social Research Institute; Eurostat; National Bureau of Statistics of China.

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U.S. economy continues to weaken more than expected

Per cent

U.S. Growth Outlook for 2009

-1.5

-1.3

-1.0

-0.8

-0.5

-0.3

0.0

Nov-08 Dec-08

Blue Chip Consensus

2008 Economic Statement

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Oil prices have dropped dramatically since July 2008

$US/bbl

Weekly Crude Oil Prices

30405060708090

100110120130140150

Jan 62004

Jun 222004

Dec 72004

May 242005

Nov 82005

Apr 252006

Oct 172006

Apr 32007

Sep 182007

Mar 42008

Aug 192008

July 11

Dec 12Nov 14 Survey

Lehman Brothers

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The U.S. recession began a year ago while private sector forecasters expect that Canada is just now entering a recession.

January 2005 = 100Index of Total Employment

98

100

102

104

106

108

Jan-05

Apr-05

Jul-05

Oct-05

Jan-06

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

U.S. enters recession Canada enters recession

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Updated Private sector outlook

Note: The Department of Finance’s survey of private sector forecasters is more up to date than Blue Chip’s. Blue Chip closed their survey on December 3rd-4th, while the Department of Finance’s survey closed on December 12th.

2009 2010 2011 2012 2013

Real GDP growthStatement 0.3 2.6 3.1 2.9 2.7Updated forecast -0.4 2.3 3.1 2.8 2.7

GDP inflationStatement 0.5 1.8 2.2 2.1 2.1Updated forecast -0.2 2.0 2.3 2.0 2.0

Nominal GDP level ($ billions)Statement 1,615 1,687 1,779 1,870 1,960Updated forecast 1,599 1,670 1,761 1,846 1,933

3-month Treasury bill rateStatement 1.9 2.7 3.9 4.3 4.4Updated forecast 1.3 2.1 3.3 4.3 4.5

Total CPIStatement 1.7 1.9 2.0 2.1 2.0Updated forecast 1.1 2.0 2.0 2.0 1.9

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Implications for fiscal outlook (after Statement measures)

Billions of dollars

Budgetary Balance

Private Sector - High Scenario

Private Sector – Low Scenario

Average

-15

-10

-5

0

5

10

15

20

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14