OTTAWA (Reuters) - The world economy is still growing slowly, although Europe and the United States need “difficult and bold action” to rein in deficits, Finance Minister Jim Flaherty said on Friday.
In testimony prepared for a parliamentary committee, Flaherty admitted that Canada’s second-quarter growth was also set to come in below expectations.
He criticized the concept of extra spending as “exactly what we should not do” but stressed that Canada would act pragmatically if the world economy deteriorated dramatically.
“As we have emphasized repeatedly for some time now, we are in a period where the global economic recovery - especially in the U.S. and Europe - is fragile and growth will be modest,” he said.
“However, it is important to note that the global economy is in fact largely growing - albeit slowly.”
It is rare for parliamentary committees to hear testimony of this nature during the summer break.
Canada’s opposition New Democrats had called for the hearings as financial markets swooned during what is traditionally a quiet summer season, partly on fears that the world was heading back into recession.
“You cannot be rigid and inflexible,” NDP finance critic Peggy Nash told Flaherty.
Bank of Canada Governor Mark Carney is scheduled to speak to the committee after Flaherty.
Helped by a robust financial sector, by tax cuts introduced before world economies began to slow and then by a package of government stimulus spending, Canada weathered the global economic crisis better than most of its trading partners.
Flaherty said that growth was slowing now, although Canada was still on track to balance its budget by 2014-15.
“While Canada experienced greater-than-expected growth in the first quarter, that is expected to be balanced out by a softer-than-anticipated second quarter - as witnessed in other G7 countries,” he said.
He said he was in constant discussion with partner nations but made no mention of any plans from the Group of Seven rich internationalized countries for coordination to reassure financial markets.
If the world economy slowed dramatically, Canada would “do what was needed” to protect jobs and to protect its own economy. “We would act in a pragmatic way as we have done successfully previously and recently,” he said.
At the same time Flaherty said spending had been the issue made clear that low taxes remained a priority.
”We are also staying the course with our plan to make Canada a low-tax jurisdiction for both families and businesses,“ he said. ”Our low-tax plan is working, and the world is increasingly noticing.
Additional reporting by Ka Yan Ng, Trish Nixon, John McCrank; Writing by Janet Guttsman; Editing by Frank McGurty