New stimulus seen if recession hits Canada: Finance minister

Sat Aug 13, 2011 9:02pm EDT
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TORONTO (Reuters) - Canada would consider fresh stimulus for its economy if it slipped into recession, its finance minister said on Saturday, a move that could complicate plans to return to a balanced budget by 2014/15.

"It will take economic contraction," Finance Minister Jim Flaherty said in an CBC Radio interview when asked what it would take for the government to suspend its budget-cutting policies and start stimulus spending again. "It would have to be the oxymoronic word 'negative growth.'"

At the beginning of the current fiscal year, Canada's Conservative government began winding down its stimulus spending program, launched two years earlier during the global financial crisis. It has pledged to stop running deficits by 2014/15.

Despite the debt crisis in Europe and threat of a U.S. slowdown, Flaherty expressed guarded optimism about the health of the Canadian economy and said it was important to take a long-term perspective in shaping policy.

"We had a very strong first quarter in Canada this year and we'll see more modest growth ... in the rest of the year. But as long as there is growth overall -- the moderate growth we expect and some small growth also in the United States - then in North America we will be relatively well off."

Canada's government has forecast the economy will grow by 2.9 percent in 2011.

Flaherty conceded that he was concerned about Europe as well, but that the situation there affected Canada much less than the United States.


Flaherty said he saw an economic slowdown in the United States -- Canada's largest trading partner -- as the most significant risk for the country, but said he was confident Canada could weather any renewed global economic turbulence.   Continued...

<p>Canada's Finance Minister Jim Flaherty attends a news conference during a financial policy retreat in Wakefield, Quebec near Ottawa August 10, 2011. REUTERS/Blair Gable</p>