Financial Post | Business

OTTAWA — After some tough years of spending restraints, Canada’s economy is soon expected to return to normal levels of growth and possibly get back to budget surpluses ahead of schedule.

But climbing out of hefty annual deficits and ensuring the country again reaches its potential output comes at a cost, according to the federal budget watchdog.

In particular, the Conservative government’s fiscal policies — although often lauded for helping to support Canada’s recovery from the 2008-09 recession — also limited the pace of that growth, as well as job creation.

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In its latest economic and fiscal outlook, the Parliamentary Budget Office acknowledged Monday that last year’s economic growth of 2% was 0.4 points higher than its projections. It now expects gross domestic product to expand by 2.1% in 2014 and 2.7% the year after that, and then remain above its potential growth rate well into 2018.

“[But] this…

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