Canada sees crisis or deflation risk without action

Thu Mar 18, 2010 11:35am EDT
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OTTAWA (Reuters) - Canada has warned the Group of 20 leading nations of the risk of another global crisis or a deflationary spiral if advanced countries do not rein in budget deficits and emerging markets do not allow for greater foreign exchange flexibility.

The caution was in a discussion document, obtained by Reuters on Thursday, for a G20 meeting Canada is chairing this week ahead of a G20 summit in Toronto in June. It stressed the importance of implementing a framework to rebalance global demand.

A return to business as usual without significant policy changes would return to an unsustainable explosion of global imbalances, it said. Fiscal consolidation without more foreign exchange flexibility would be expected to lead to inflation by 2011.

(Reporting by Randall Palmer; editing by Rob Wilson)