UPDATE 1-Canada headed for structural deficit-budget officer

Mon Nov 2, 2009 4:59pm EST

* 2009-11 budget deficit estimates similar to government's

* Structural deficit seen in 2013-14

* Economy to recover full potential at end 2013 (Recasts, adds details throughout)

OTTAWA, Nov 2 (Reuters) - Canada's economy will not fully recover until 2013 and the federal government will carry a structural budgetary deficit of C$19 billion ($17.6 billion) after the crisis, a report by the parliamentary budget officer said on Monday.

The budget officer (PBO), Kevin Page, issued a report revising his fiscal and growth forecasts and bringing them roughly in line with those of the Conservative government of Prime Minister Stephen Harper, showing Canada is one of the G7 countries to better withstand the global financial crisis.

But he differed with the government on the politically sensitive issue of whether it will be able to balance its books again within five years, based on economic growth and belt-tightening.

"PBO calculations continue to suggest that the budget is not structurally balanced over the medium term," the report said.

"PBO estimates that the structural balance would deteriorate from essentially a balanced position in 2007-08 to an C$18.9 billion structural deficit in 2013-14."

Finance Minister Jim Flaherty's latest fiscal projections in September showed a small deficit of about C$5 billion in 2014-15 but Flaherty later said he hoped to eliminate that deficit "five years from now."

After a decade of surpluses, the government opted to fall into deficit again to implement a nearly C$50 billion stimulus package to combat recession. The size of that deficit has been growing as the real magnitude of the downturn becomes known.

Page's report forecast a 2009-10 budget deficit to C$54.2 billion, or 3.6 percent of gross domestic product, slightly under the government's estimate in September of a deficit of C$55.9 billion.

He predicted a deficit in 2010-11 of C$43.1 billion, compared with the government's projection of a C$45.3 billion deficit.

The cumulative budgetary deficit in the years from 2009-10 to 2013-14 would total C$167.4 billion, he said.

Page's outlook for GDP is based on private-sector forecasts and is therefore the same as that of the government. He sees an annual contraction of 2.3 percent in real GDP this year and growth of 2.3 percent next year.

Based on its own calculation of potential output -- the rate at which the economy can grow without triggering excess inflation -- the PBO forecast the Canadian economy will not return to potential until the end of 2013.

"On a cumulative basis, this represents a loss of over C$200 billion in unrealized output ... similar in percentage terms to the cumulative loss experienced in the 1990s recession," it said. ($1=$1.08 Canadian) (Reporting by Louise Egan; editing by Peter Galloway)

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