Canada vows to protect recovery but end stimulus

Mon Sep 27, 2010 2:05pm EDT
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By John McCrank

MONTREAL (Reuters) - Canada's government said on Monday it would take action as needed to protect the shaky economic recovery, but resisted pressure to prolong stimulus spending as its focus turns to tackling its budget deficit.

Finance Minister Jim Flaherty said the Conservative federal government has committed 98 percent of the C$22 billion ($21 billion) it had planned for the second year of its C$48 billion economic stimulus package, which was aimed at softening the blow of the recession that ended late last year.

But as the recovery loses steam and economists predict a slight economic contraction in July, the first monthly contraction in almost a year, the minority government of Prime Minister Stephen Harper has come under pressure to keep the stimulus tap running beyond the March 2011 end of the program.

Flaherty said the Canadian economy has recovered all the jobs lost during the recession and output has also returned to pre-recession levels. But he conceded it is a "very uncertain time" for the global economy.

"That's why the next few months are so critical for our country as this government continues our efforts to create jobs, to boost investment and to make our nation even more competitive ...." he told reporters in Montreal.

"In the short term, the government is focused on finishing the job of implementing the economic action plan. We will also continue to monitor economic development closely and will take action as necessary to protect the economic recovery," he told reporters in Montreal.

Flaherty noted signs the private sector would soon replace the government in stimulating growth.

"We've seen this year some increases in the investment in machinery and equipment by Canadian business, which is quite encouraging in terms of future private-sector demand," he said.   Continued...