Canada will take a year longer than predicted to balance the budget and will miss its annual deficit targets in each of the next four years due to a drop in income driven by lower commodity prices, Finance Minister Jim Flaherty says.

Delivering the government's fall fiscal outlook Tuesday, Flaherty also cautioned that Canada must be wary of economic turbulence in Europe and the U.S.

But overall Flaherty's mid-term report card took a hopeful -- if somewhat guarded -- outlook.

"Canada is still growing, and is among the strongest G7 economies," Flaherty said. "But we are not immune to the economic uncertainty beyond our borders and the economic challenges faced by some of our largest trading partners."

He added that Canada has particularly been affected by "volatile and falling world commodity prices" since the federal budget was released in late March.

"The forecast of private-sector economists is consistent with the view that world commodity prices will remain below the level anticipated at the time of the budget," he said, speaking from Fredericton, N.B.

In other words, Flaherty explained, world prices have fallen for the commodities Canada produces, resulting in lower profits for producers and ultimately lower tax revenues for Ottawa. Because of these weaknesses, the government expects revenues to be $7.2 billion below budget expectations over the next five years.

"This will have a direct and significant impact on the fiscal outlook I present to you today," Flaherty said.

The fall update showed the deficit reaching $26 billion this fiscal year, an increase of $5 billion from the forecast included in the March budget forecast.

Flaherty also touched on the threat from economic uncertain in Europe, and the looming fiscal cliff in the U.S. -- a situation that will be triggered in the U.S. by automatic tax increases and government support cuts set to automatically kick in on Dec. 31 if Republicans and Democrats can't agree on an economic path forward.

If that happens, many analysts predict the U.S. economy would immediately fall into recession, dragging its biggest trading partners -- including Canada -- with it.

Flaherty said it is essential that Washington develops a "credible medium-term plan" to reduce the fiscal deficit over time. "But it also needs to ensure that there is a political agreement in the short term so that markets and investors can be confident that its economic recovery will not be interrupted," he added.

In October, Flaherty hinted that he was expecting lower revenues due to a drop in commodity prices, a major driver of the Canadian economy. TD Bank has calculated that revenues would be about $1.8 billion lower than projected this fiscal year, which ends March 31.

Peggy Nash, of the NDP, responded to Flaherty's fiscal update on Tuesday, saying the government isn't doing enough to get the economy back on track.

"People are seeing their incomes stagnating, many people are facing high unemployment and this government seeems to have an approach of steady as she goes," she said in a news conference.

Pedro Atunes, director of national and provincial forecasts at the Conference Board of Canada, said Flaherty's predictions are somewhat conservative. He said the Conference Board expects stronger growth, better commodity prices, and a quicker debt-reduction schedule than that set out by Flaherty.

"Going forward we at the Conference Board do feel growth may be a little stronger than the concensus and we may get ourselves out of the deficit situation a little sooner than expected," he told CTV News Channel.

Flaherty also outlined a plan to keep government spending under tight control, saying direct program expenses were not expected to increase over the next four years, and overall program spending, as a percentage of GDP, would actually decline to pre-recession and pre-stimulus levels.

However, he said transfer payments to the provinces would not change.

According to other recent economic news, Canada is in a desirable position. Last week, a report from the Organization for Economic Co-operation and Development (OECD) predicted Canada will be one of the world's leading nations over the next 50 years.

The OECD report said Canada will continue to lead the G7's industrialized economies in average annual growth over the next half century. The country will also be near the top on a per-capita basis, with only Japan sneaking ahead.

The OECD, which represents most of the world's biggest industrialized economies, predicts Canada's real gross domestic product will average 2.2 per cent growth in the next half century -- largely due to predictions Canada's labour force will continue to grow.

Of the remaining G7 nations, only the United States and the U.K. even come close, with a predicted annual growth rate of 2.1 per cent, according to the report. However, Australia, New Zealand, Israel and Norway -- all non-G7 members due to their small size -- are all predicted to record stronger growth rates than Canada.