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Oil and virus shocks may delay Canada's budget, force up deficit - economists

OTTAWA, March 9 (Reuters) - Canada’s federal budget may be delayed and the deficit likely will be higher than had been expected as oil prices slump and the coronavirus spreads, economists said on Monday.

Canada reported its first coronavirus death on Monday as the number of those infected rose, and a steep decline in oil prices is expected to hit the world’s fourth-largest crude producer hard.

Finance Minister Bill Morneau had been expected to deliver later this month his budget for the fiscal year beginning in April, and he will speak to reporters later on Monday.

“This likely means the federal budget, which was probably in draft form at this point, may have been based on what now looks like an outdated economic backdrop,” said Avery Shenfeld, chief economist at CIBC Capital Markets. “Revenues will certainly be weaker.”

Economists were already expecting slow growth in the second quarter because of recent shocks, but now the third quarter could also be in jeopardy, Shenfeld said.

Canada’s main stock index fell on Monday by the most since the 2008 global financial crisis, and the loonie hit a near-three-year low as plunging oil prices rattled investors.

“Obviously, all of this comes at an extremely delicate time,” said Doug Porter, chief economist at BMO.

“It is possible that what they will do is make it quite clear that the budget wasn’t meant to address the short-term developments and that there’ll be supplemental measures,” he said. “Another possibility is delaying the budget.”

Porter said BMO was looking to cut its 2020 growth forecast to around 0.5%, although that number has not been finalized.

“That’s down a little bit more than a percentage point from what the consensus was around the start of the year,” Porter said. In its December update, the Canadian government forecast 1.6% growth for this year.

Scotiabank’s Deputy Chief Economist Brett House said the current economic environment will see increased government spending regardless of the budget’s timing.

“It almost certainly means larger deficits and more spending,” House said.

Canadian annualized growth was 0.3% in the fourth quarter, the worst performance in almost four years.

Last week, The Bank of Canada slashed its overnight interest rate by half a percentage point to 1.25% and said it was prepared to cut further as tries to shield the economy from the impact of the coronavirus outbreak.

Reporting by Kelsey Johnson in Ottawa; editing by Steve Scherer and Cynthia Osterman