Canada's Quebec sees budget hit from U.S. slowdown

Thu Mar 13, 2008 4:55pm EDT
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By David Ljunggren

QUEBEC CITY, Quebec (Reuters) - Quebec's minority Liberal government said on Thursday it would balance its budget in the coming fiscal year and dip into a special reserve fund to ensure the two budgets after that were also balanced.

But the government, in spending plans that won support from the opposition Action Democratique de Quebec, said the U.S. slowdown was already taking a toll on its economy. It slashed its 2008 growth forecast to just 1.5 percent, rising to 2 percent next year.

Last May the government of the mainly French-speaking Canadian province of 7.5 million people forecast growth of 2.5 percent for 2008. Private sector economists in January predicted 2008 growth of 1.8 percent.

"When the sea is rough, we must keep a firm grip on the helm... The actions taken by our government should enable Quebec to avoid a recession," Finance Minister Monique Jerome-Forget said.

Jerome-Forget said Quebec would limit spending growth to 4.2 percent in 2008/09 and 3.0 percent in 2009/10, and would use a C$1.8 billion budgetary reserve to balance its budgets in 2009/10 and 2010/11.

"We will therefore be able to absorb the shock of the economic slowdown without raising taxes and without scaling back public services... This budget is realistic despite the winds of adversity," she told the National Assembly.

The opposition Action Democratique du Quebec party made clear it would back the budget, ensuring the Liberals' survival. "I'll make a recommendation to my caucus not to defeat this budget," finance spokesman Gilles Taillon said.

A large part of the budget focused on Quebec's manufacturing sector, hard hit by the high Canadian dollar, weakening U.S. markets and increased foreign competition.   Continued...

<p>Quebec's Premier Jean Charest (R) applauds Finance Minister Monique Jerome-Forget (L) as she unveils her budget at the National Assembly in Quebec City March 13, 2008. REUTERS/Mathieu Belanger</p>