April 20, 2009 / 4:09 PM / in 9 years

Canada's Flaherty says serious recession persists

CHICAGO (Reuters) - Canadian Finance Minister James Flaherty said on Monday he is seeing “some small encouraging signs” for the country’s economy, but that Canada remains in a “serious recession.”

<p>Canadian Finance Minister Jim Flaherty speaks at a news conference following the G20 Finance Ministers meeting at a hotel, near Horsham, in southern England March 14,2009. REUTERS/Kevin Coombs (</p>

“We will continue to have serious challenges; this is a difficult year,” Flaherty said on the sidelines of a Chicago Federal Reserve Bank conference on financial literacy.

Among the positives, the Canadian bond market is “functioning well again and there are some encouraging signs in capital markets,” he said.

Asked about the possibility that more measures to boost Canada’s economy will be needed, Flaherty said that stimulus already in place “is just entering the economy now.”

“The fiscal year started April 1 and the major investments are happening in the first quarter -- April, May, June. We need to make those investments and see where we stand,” he said.

The Bank of Canada is due to meet this week about possible additional measures it can take to stimulate the country’s economy beyond rate cuts.

Like the U.S. Fed, the BOC has cut interest rates drastically -- in Canada’s case to 0.5 percent -- in an attempt to pull the country out of recession.

Many market participants expect some form of quantitative easing to be attempted in Canada by the end of the second quarter now that rates are at rock-bottom.

Flaherty said a recovery in the banking sector is essential to reviving economic growth.

“There are still issues with respect to some of the American banks and some of the European banks. The primary point that we’ve been making internationally is that fixing the banks is the sine qua non of economic recovery,” he said.

“I‘m encouraged by what (U.S. Treasury Secretary) Tim Geithner is doing in terms of stress-testing banks.”

The Obama administration has said that results on the stress tests of the nation’s 19 top banks would be released on May 4.

Editing by Theodore d'Afflisio

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