Morneau to hear array of advice on how to prepare budget in Trump era

As part of the budget-writing process, federal finance ministers routinely call on outside economists for their forecasts. Their projections are averaged to create a fiscal foundation for the budget, which could be released as early as next month.

The meeting in Toronto comes a week before Trump’s inauguration, an event that could mark the beginning of an era of U.S. policy changes that could significantly threaten the Canadian economy.

CIBC chief economist Avery Shenfeld, who will attend the meeting with Morneau, said he expects the private-sector consensus to show that the Canadian economic outlook has improved somewhat since the fall, thanks largely to a strengthening U.S. economy and the fact the worst of the oil-price shock seems to be over.

But Shenfeld added that the forecast won’t account for any potential fallout for Canada from Trump’s promised economic policies, which include cutting corporate taxes and implementing a border tax on imports.

As it stands, no one can say if and when these measures will come into force.

“How do you build in something that you don’t know is going to happen? It’s all very hard to assess that numerically,” said Shenfeld, who added that even Trump-related uncertainty could hurt both business confidence and the economy in Canada.

Shenfeld said it makes more sense at this point to plan as if Canada’s growth rate is going to see a modest pickup and make adjustments in the future, if necessary.

“I wouldn’t panic yet about potential trade risks to Canada,” he said. “I would take a wait-and-see stance on that.”

But Craig Alexander, chief economist of The Conference Board of Canada, said he thinks Trump’s proposals create enough uncertainty that some kind of fiscal prudence would be appropriate in this year’s budget.

Alexander, who also said he didn’t account for Trump’s vows in his forecast, says the impacts of the president-elect’s proposals could go either way for Canada.

He said Trump’s pledges to significantly increase infrastructure investments and make cuts to corporate and personal taxes could boost U.S. economic growth, which would benefit Canada.

On the other hand, he said moves by Trump to introduce protectionist measures and strong-arm business investment to return to the U.S. from places like Canada could pose risks.

A research note released Thursday by National Bank Financial Markets said Trump’s proposed 10% border adjustment tax on imports to the U.S. could cause total Canadian goods exports to its neighbour to fall by about 9%. A second paper published by the bank Thursday warned that Ontario and New Brunswick would likely feel the most pain from the implementation of such a border tax.

A separate report by the Montreal Economic Institute said border tariffs could have “very harmful” consequences for automakers in Canada and the U.S. because after 50 years of trade liberalization the countries’ auto industries are fully integrated.

On Thursday, Prime Minister Justin Trudeau tried to offer reassurance when he was asked about recent a high-level meeting between Canadian officials and members of Trump’s team.

“I can assure people that they have been constructive and positive discussions about protecting Canadian jobs and the Canadian economy while looking at better collaboration and co-operation with the Americans,” Trudeau told reporters in Kingston, Ont.

Another expert who will be at the table Friday said, if asked, he will probably recommend to Morneau that Canada’s first order of business should be to reason with the new U.S. administration and do everything necessary to secure the best deal possible.

Otherwise, Desjardins senior economist Jimmy Jean said the Canadian economy could face serious consequences, particularly since three-quarters of the country’s exports are sold to the U.S.

“If we imagine Canada on an island far from the U.S., it’s not the same country definitely — it’s not the same economy,” Jean said referring to the prospect of new trade barriers in the U.S.

“We just can’t let that happen, so we need to be serious and clever negotiators.”