{"id":280388,"date":"2025-11-13T12:51:15","date_gmt":"2025-11-13T12:51:15","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/280388\/"},"modified":"2025-11-13T12:51:15","modified_gmt":"2025-11-13T12:51:15","slug":"heres-what-the-only-credit-rating-agency-to-downgrade-canadas-debt-during-the-pandemic-had-to-say-about-the-federal-budget","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/280388\/","title":{"rendered":"Here’s what the only credit rating agency to downgrade Canada’s debt during the pandemic had to say about the federal budget"},"content":{"rendered":"\n

Fitch Ratings Inc.<\/a> is warning that Canada\u2019s finances face a potential \u201cslippery slope,\u201d says one economist.<\/p>\n

\u201cThere\u2019s a lot of concern, especially the fact that the deficit stays relatively big, the trajectory for federal debt<\/a> remains relatively high,\u201d Charles St-Arnaud, chief economist at credit union Albert Central, said. \u201cI think Fitch is probably more worried that it could be a slippery slope,\u201d St-Arnaud said.<\/p>\n

Fitch maintained its rating for Canada of AA+\/stable following the budget\u2019s release on Nov. 4, while Moody\u2019s Ratings and S&P Global Ratings maintained the country\u2019s AAA debt ranking. Fitch\u2019s rating is lower because it downgraded Canada\u2019s debt during the pandemic in 2020.<\/p>\n

\u201cWhile Canada\u2019s rating is broadly stable, persistent fiscal expansion and a rising debt burden have weakened its credit profile and could increase rating pressure over the medium term,\u201d Fitch said in a statement. \u201cThis may be exacerbated by persistent economic underperformance caused by tariff risks and structural challenges, including low productivity.\u201d<\/p>\n

However, rising deficits and a debt-to-gross-domestic-product<\/a> (GDP) ratio appeared to rankle the agency.<\/p>\n

Fitch said the expected federal deficit of $78.3 billion in the 2025-26 fiscal year, or 2.5 per cent of GDP, will overshoot its prior outlook for a deficit of $70.4 billion, or 2.1 per cent of GDP.<\/p>\n

The agency said that raises the general government deficit, which includes all levels of government, to 3.3 per cent of GDP, higher than the AA median of 2.3 per cent and \u201csubstantially higher than Canada\u2019s pre-pandemic deficits, which averaged 0.4 per cent in the two decades prior to 2019.\u201d<\/p>\n

But Canada isn\u2019t in any imminent fiscal danger, Fitch said.<\/p>\n

\u201cCanada can withstand an economic or fiscal shock at this rating level. But that being said, there\u2019s definitely weakness on the fiscal side, but higher, higher deficits and debt levels increasing, so that puts some downward pressure on the profile,\u201d Joshua Grundleger, director of sovereigns at Fitch, said.<\/p>\n

Fitch also estimated Canada\u2019s general government-debt-to-GDP ratio will rise to 91.8 per cent in 2026 and 98.5 per cent in 2027, compared with 88.6 per cent in 2024 and nearly double the AA rating median of 49.6 per cent.<\/p>\n

The agency expressed doubt about Canada\u2019s ability to rein in its federal-deficit-to-GDP ratio, given that \u201cthe Canadian government has a track record of upward deficit revisions, with subsequent budget updates consistently worse than prior projections.\u201d<\/p>\n

For example, the federal government broke through three fiscal guardrails established in the 2024 fall economic statement (FES): capping the deficit at $40 billion, reducing deficits and reducing the debt-to-GDP ratio.<\/p>\n

In the latest budget, the debt-to-GDP ratio is forecast to rise to 42.4 per cent and 43.1 per cent in 2026 and 2027, respectively, rather than declining to 41 per cent as laid out last year in the FES.<\/p>\n

St-Arnaud said he would have liked to see Fitch comment on Prime Minister Mark Carney<\/a>\u2018s use of deficit spending to increase productivity over the long term. For example, much of the announced spending is destined for infrastructure, defence and housing, while the government is trying to spur $500 billion in private investment through the use of business tax credits.<\/p>\n

\u201cSo, helping now to generate more potential growth later might actually improve your long-term sustainability, that being having too much restraint now and actually falling short in productivity and potential growth later,\u201d he said.<\/p>\n

Grundleger said Fitch recognizes the spending announced by Carney is targeted at capital projects meant to improve productivity rather than going to, say, consumption or increased wages. In that sense, the tone of the budget is distinct from the Justin Trudeau years, he said.<\/p>\n

\u201cThat being said, the devil is always in the details,\u201d he said, including whether the spending increases productivity, where the money goes and what it actually does.<\/p>\n

Parliament still has to pass Canada\u2019s budget.<\/p>\n

\u201cI will say that the numbers seem to be worsening with each cycle,\u201d Grundleger said. \u201cWe don\u2019t obviously think that this unto itself is cause for downgrade; it\u2019s still a very strong credit profile.\u201d<\/p>\n

\u2022 Email: gmvsuhanic@postmedia.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"Fitch Ratings Inc. is warning that Canada\u2019s finances face a potential \u201cslippery slope,\u201d says one economist. \u201cThere\u2019s a…\n","protected":false},"author":2,"featured_media":280389,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[49,48,127745,127747,62463,127749,127746,24520,33093,127748,44],"class_list":{"0":"post-280388","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-canada","8":"tag-ca","9":"tag-canada","10":"tag-charles-st-arnaud","11":"tag-credit-profile","12":"tag-debt-to-gdp-ratio","13":"tag-deficit-spending","14":"tag-federal-debt","15":"tag-federal-deficit","16":"tag-fitch-ratings","17":"tag-government-deficit","18":"tag-news"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/280388","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=280388"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/280388\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/280389"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=280388"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=280388"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=280388"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}