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Federal Debt Essentially Stable

ByThe National Bank of Canada
Published 11/14/2011, 05:07 AM
Updated 05/14/2017, 06:45 AM

German Finance Minister Wolfgagng Schauble is reported to have said he is not worried by Italy’s bond spreads (553 basis points above 10-year German bonds) right now because they are similar to those in the days before the introduction of the euro. Although he is right on that point, the current 10-year yield on Italian bonds at 7.23% is seen by many as having reached alarming levels. Development on the political front (change of the guard in the Italian parliament) might ease tensions. Still a long term solution to the European debt will require structural changes. Back in the 1990`s Canada also had to take the turn towards sustainable fiscal policies. Fortunately, Canadian policy makers have had the advantage of implementing their reforms in a time when the global environment was relatively tranquil and economic growth south of the border was robust.

Nonetheless, actions taken back then did put Canada on a better footing to face the recent global financial crisis by providing more room on the fiscal side to support economic growth. Canada`s recession proved relatively mild and job losses were recovered rapidly when compared to the situation in many other advance economies. Despite, the slightly higher deficit pattern that resulted from the last recession and the softer economic environment expected over the medium term, yesterday’s Federal Update of Economic and Fiscal Projections still shows the federal debt to GDP ratio reaching 30.3% by 2016-17. Sound fiscal policies are contributing to Canada 30- year bonds trading below long Treasuries.

Federal Debt Essentially Stable

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