Budget watchdog expects higher unemployment

The parliamentary budget officer expects growth in Canada's economy will slow, and unemployment will spread in the next few quarters.

In his latest economic outlook, Kevin Page says he expects Canada's unemployment rate will jump to eight per cent this year and next. That's ahead of the 7.1 per cent level it's currently at.

It's also higher than the 7.8 per cent level he expected it to be at as recently as May.

The budget watchdog expects the jobless rate to inch higher because of a general slowdown in the economy. He expects GDP will expand by only 1.5 per cent next year and 2.1 per cent in 2013. That 1.5 figure is significantly below the 2.2 per cent level he was expecting at his last update in May. At that time, he was expecting 2.3 per cent growth in 2013.

His 2.2 per cent growth expectation for this year is in line with Finance Minister Jim Flaherty's latest forecast. It is, however, significantly below the 2.9 per cent he was expecting in May.

For 2014 and beyond, Page expects growth will hover at around 2.8 per cent per year. The slower growth means lower tax revenues, which will make Ottawa's pledge to balance its books by 2014 more unlikely.

"The PBO estimates that the likelihood of realizing budgetary balance or better is approximately 10 per cent, 25 per cent and 40 per cent in 2014-15, 2015-16 and 2016-17, respectively," the report reads.

Page predicts a shortfall of $7.3 billion in 2016-17.

He also predicts that the Bank of Canada will hold its key interest rate at one per cent until the third quarter of 2013.