August 13, 2011 / 11:48 PM / 6 years ago

New stimulus seen if recession hits Canada: Flaherty

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.

<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>

“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.

FISCAL RESPONSIBILITY

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.

“We are seeing a relatively small growth in the U.S., but we are seeing growth. As long as that continues we ought not have too much difficulty,” he told the Canadian Broadcasting Corp.

Still, Flaherty again emphasized the need for the United States and some European countries to follow Canada’s example on fiscal responsibility.

“We have a plan to get us back to surplus by 2014/15. We have long-term planning in place and we have the resolve to stay the course,” Flaherty said.

“This is a fundamental need both in the United States and certain European countries. We need governments to demonstrate that they can get their financial issues straightened out in terms of deficit and debt.”

Flaherty dismissed the notion that Canada was too dependent on trade with the United States but said there were advantages to expanding commerce with India, China and other Asian economies.

”We need to do more trade with other countries, and we need to do more trade with the United States. I‘m very happy that the most powerful economy in the world, by far, is the United States economy, and it’s right next door to us.

Reporting by Frank McGurty; Editing by Paul Simao

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