UPDATE 2-Canada's new gov't says fiscal outlook worse than projected

(Adds Morneau quotes on government's fiscal intentions,
Conservative and market reaction)
By Randall Palmer
OTTAWA, Nov 20 (Reuters) - Canada's new Liberal government
said on Friday it was inheriting a significantly gloomier fiscal
picture than previously expected, and did not rule out the
possibility it would run higher budget deficits than it had
campaigned on.
Finance Minister Bill Morneau unveiled an economic and
fiscal update which projected billions of dollars of deficits
based on the former Conservative government's plans, despite
previous Conservative forecasts of surpluses.
A large portion of the worsened outlook is due to the
Liberals, who defeated the Conservatives in last month's
election, having lowered growth forecasts to levels well below
downwardly revised levels predicted by private-sector
economists.
The move effectively adds a buffer or contingency reserve
for worse-than-expected growth.
The fiscal update does not include Liberal spending promises
made during the election.
Reporters repeatedly pressed Morneau as to whether the
Liberals would now run deficits exceeding the C$10 billion ($7.5
billion) limit they had set in the campaign.
"It would be too soon for me to answer your question,"
Morneau said.
He spoke of the need to strike "a balance between fiscal
discipline and our promises to Canadians." He also said it was
clear governments cannot cut their way to prosperity, and the
disappointing outlook reinforced the need for the Liberal
spending promises.
Conservative legislator Lisa Raitt urged the Liberals not to
"let deficits balloon out of control."
It was still unclear what the government's plans were for
the fiscal year that started in April. Their campaign documents
had only dealt with 2016-17 and beyond.
Excluding the Liberal plans, the update forecast the deficit
would be C$3.0 billion in the current fiscal year and C$3.9
billion in 2016-17, with deficits continuing through 2018-19.
The government's decision to cut the growth forecast added
C$1.5 billion to the projected deficit for 2015-16 and C$3.0
billion for each of the five years from 2016-17 on.
The Conservatives' April budget had forecast a C$1.4 billion
surplus in 2015-16 and C$1.7 billion in 2016-17.
The news spurred little market reaction. Bank of Montreal
senior economist Robert Kavcic noted the current deficit
projection was small as a share of gross domestic product and
that net debt still should fall as a percentage of GDP.
Because the deficits are a small share of GDP "the market
will adjust to that and not treat it as negatively as we once
did years ago," said Rob Catani, managing director of fixed
income at National Bank Financial.
($1=$1.33 Canadian)