Trudeau’s Finance Chief Warns of Scarring, Vows to Keep Spending

(Bloomberg) -- Finance Minister Chrystia Freeland stressed the government will do “whatever it takes” to support Canada's recovery and suggested it's too early to declare victory despite data that show surprising strength in the economy.

Gross domestic product expanded at a 9.6% annualized rate in the fourth quarter, according to a preliminary estimate released Tuesday by Statistics Canada. A flash estimate from the agency said the economy probably grew 0.5% in January.

Freeland said at a news conference she's committed to spending through the Covid-19 crisis. “Our government will continue to do whatever it takes, for as long as it takes, to help Canadians through this bleak time, to prevent economic scarring and to invest in a way that allows us all to come roaring back after Covid-19,” she told reporters Wednesday in Ottawa.

Prime Minister Justin Trudeau has presided over some of the developed world's largest deficits to help the economy during the pandemic. Canada's deficit swelled to C$248.2 billion ($196.6 billion) in the nine months ended Dec. 31, compared to C$11 billion in same period a year earlier.

The borrowing has been driven by programs that send money to people and businesses that lost jobs and income because of the virus, which has killed 22,000 people in Canada. But some say the government went too far -- spending C$20 in transfers to households last year for every dollar of regular income that was lost.

“We are constantly, carefully evaluating government spending, government debt, jobs numbers and economic growth,” Freeland said. “We are prudent and we are responsible, but sometimes the greatest danger is not to act and we understand that risk, too.”

The government is indeed acting, extending its Covid-19 income supports for businesses -- wage and rent subsidies, along with a lockdown benefit -- at current levels until June. Freeland pegged the cost of that move at C$16 billion, and it comes on the heels of a similar extension last month for aid to individuals that cost about C$12 billion.

“Given the timing, these changes will mostly impact next fiscal year,” Simon Deeley, an analyst at RBC Capital Markets, said Thursday in a report to investors.

This week's GDP numbers have caused economists to begin raising their forecasts for 2021, and expectations for better growth are showing up in higher borrowing costs. The yield on 10-year Canada bonds has increased to 1.42%, up from below 1% earlier this month.

©2021 Bloomberg L.P.