UPDATE 1-Canada has options if US fails to avert 'fiscal cliff'

Wed Nov 7, 2012 6:14pm EST
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* Carney: monetary, fiscal stimulus possible if no US deal

* Flaherty says Canada would face another recession

* Expects 11th hour deal in Washington

OTTAWA, Nov 7 (Reuters) - Canada will fall into recession if Washington does not reach a deal by year-end to avert the so-called fiscal cliff, but t h e Ca nadian go vernment and central bank could provide extra stimulus if necessary, p olicymakers said on Wednesday.

Unless the White House and Congress agree on how to cut the U.S. budget deficit, a $600 billion package of tax increases and spending cuts kicks in automatically at the end of 2012 and would threaten U.S. economic growth.

"Were the entire fiscal cliff risk to become reality, the effect on U.S. GDP, according to the Americans themselves, would be 4 to 5 percent, which would put the U.S. economy into recession quite quickly and the Canadian would follow shortly thereafter," Fina nce Minister Jim Flah erty told reporters in Ottawa.

Canada's economy recovered from the global recession faster than that of the United States, but it remains heavily reliant on trade with its neighbor, which buys three-quarters of its exports.

Bank of Canada Governor Mark Carney said policymakers would have several options to protect Canada from fiscal calamity south of the border.

"We can provide stimulus on the monetary side, the government could take measures, other things could happen, but we don't need to do that in anticipation of the Americans not coming to an agreement, an agreement that is in their own interest," Carney told the Canadian Broadcasting Corporation in an interview.   Continued...