Increased federal spending could help Alberta cut borrowing, BMO says

As federal spending ramps up under Prime Minister Justin Trudeau, a top economist says this might buy the provincial government some room to pull back on some its infrastructure spending.

Douglas Porter, the chief economist with BMO Financial Group,says the federal government's debt-to-GDP ratio has been dropping, which gives themample room to borrow more.

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But Porter saidprovincial debt ratios are climbing and may soon surpass federal levels. A boost in federal infrastructure spending could give the Alberta government a chance to cut its borrowing,which could be helpful given low oil revenues.

"If we're talking about the kind of numbers that some folks are trying to encourage (the federal government)to spend if we're talking about $30-billion deficits or so, Iwould actually encourage some of the provinces to rein it in a bit," said Porter, speaking in Calgary Thursday at a business luncheon.

Porter projects oil prices will average about $40 a barrel over the course of this year before improving in 2017. Still, he said it's too early to say if the price currently hovering just above $30 a barrel has hit rock bottom.

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"We've seen that before when it was in the $50s, it looked like it was forming a base," said Porter.

"We really do need to see some kind of production curtailments in places like Russia ... but I think we still have to be cautious on prices before we assume they've hit bottom."

Porter said the Canadian dollar should recover some ground against its American counterpart once oil prices rebound, but cautioned that the U.S. dollar is a strong performer.