Doug Porter, the chief economist with BMO Capital Markets, said the full impact of thousands of people in the National Capital Region losing their jobs with the government is still not totally clear.
While many civil servants are choosing to retire early with a healthy pension, or voluntarily accept a buyout package, federal austerity measures are nevertheless bound to have a negative impact on the local economy.
Ottawa ranked 26th among 28 metropolitan areas when it came to expected growth, according to a report from think tank the Conference Board of Canada released earlier this month. It also downgraded the 1.9 per cent increase in real GDP it expected last September to 1.3 per cent.
However Mr. Porter said in an interview that he sees no reason why a percolating tech sector can’t step “into the void and help support the local economy.”
The work force in Ottawa is still well-educated, he said, making a rebound from the federal layoffs a strong possibility.
“The tech sector still does have relatively strong medium-term potential, a lot of companies that we haven’t necessarily heard of that are small and niche and that are quietly growing under the radar,” said Mr. Porter.
“That is where we tend to get the fastest growth.”
This would be especially important if the federal government announces another round of cutbacks.
In absolute terms, the National Capital Region has been home to the largest number of the close to 11,000 positions the government eliminated as of November, the federal government said in a news release earlier this month. The government hopes to eventually eliminate close to 20,000 positions in total.
But Mr. Porter advised businesses to not totally rule out the possibility of further rounds of government layoffs. He said he believes more cutbacks will be necessary if the government wants to reach its stated goal of generating a budget surplus in 2015-16.
The government expected a $26 billion deficit for the year when it gave an update on its finances last November.