Title: Economists Optimistic Despite Projected $100 Billion Deficit

Stéfane Marion, chief economist at National Bank Financial, is expressing optimism about the upcoming federal budget, despite predicting a significant deficit of $100 billion. Marion has been critical of what he describes as ineffective Canadian policies that have contributed to a decade of economic stagnation. He has highlighted several concerning trends, including stagnant GDP per capita, manufacturing capital stock levels unchanged since the 1990 NAFTA negotiations, and a troubling increase in regulations affecting businesses. Currently, there are approximately 320,000 regulations impacting companies, with 110,000 specifically in the manufacturing sector.

Marion noted that factory output has declined even as the population has grown by 30%. He stated that Canada has fallen out of the top 20 in international competitiveness, dropping from its previous fifth-place ranking among G7 countries. "We talk about a Canadian productivity problem but really we have an investment problem. There is no precedent for investment stagnation for a decade," he said.

Despite these challenges, Marion believes his initiative, "Make Canada Investable Again," is gaining traction. He expressed, "I’m the most optimistic I’ve been in a decade about our economic outlook," referencing the Carney government’s throne speech in April, which promised to position Canada as a leading G7 economy and an energy superpower. The government also aims to innovate immigration policies and reduce regulations.

Marion described the upcoming budget as potentially the most significant in a generation. He predicts the deficit will exceed the $70 billion consensus and more than double the $42 billion forecasted by the government last December. His insights stem from his experience in the Finance Department, where he learned that new finance ministers often reveal uncertainties in their first year to allow for future policy adjustments.

He emphasized that the government's handling of the deficit is crucial. Prime Minister Mark Carney must reassure investors, who hold 40% of the country’s bonds. "How do you convince investors to keep with the Canadian thematic?" Marion asked. He believes the budget should be stimulative and include substantial investments to foster confidence in Canada’s economic future.

While a $100 billion deficit would be alarming, it would represent only 3% of GDP, significantly lower than the U.S. deficit. Marion suggested that a $70 billion deficit might be overly cautious given current uncertainties. He stated, "You want to show improvement next year."

Marion is not alone in his positive outlook. Canadian stock markets have risen by 20% this year, outperforming U.S. equity indices, which have increased by 13%, and doubling the growth seen in European markets. He noted that the S&P/TSX index is currently trading at 17 times earnings, a level not seen in a decade, and has narrowed its discount compared to the S&P 500, which trades at 22.4 times earnings.

"I’m not the only one who is optimistic," Marion said. "Now we need to deliver." He cautioned that if the budget fails to meet expectations, the current market optimism could quickly dissipate.