Econ­omy weaker than pre­dicted, but no sec­ond stim­u­lus: Fla­herty

Cape Breton Post - - NEWS/WEATHER -

OTTAWA, Ont. (CP) — Canada won’t get a sec­ond round of stim­u­lus spending even though the econ­omy has yet to fully re­cover, Fi­nance Min­is­ter Jim Fla­herty said Tues­day.

The fi­nance min­is­ter met with 15 economists Tues­day morn­ing and re­vised the coun­try’s pro­jec­tion for growth this year slightly up­wards and slightly down­wards longer term.

But the ma­jor dif­fer­ence in the new pro­jec­tions comes in com­par­ing where the econ­omy is to­day to where the gov­ern­ment ex­pected it last Jan­uary, when it passed a record $46-bil­lion stim­u­lus pack­age.

Ottawa now be­lieves the coun­try’s 2010 nom­i­nal gross do­mes­tic prod­uct — the size of the econ­omy — will be $56 bil­lion be­low the level it ex­pected last Jan­uary, which di­rectly af­fects tax rev­enues. And the gap ex­pands in out­go­ing years. As well, it now ex­pects the un­em­ploy­ment rate to av­er­age 8.5 per cent this year — less than the view in Septem­ber — but a full point higher than the Jan­uary 2009 bud­get es­ti­mate.

Af­ter meet­ing with the economists, the min­is­ter said the re­cov­ery is still frag­ile and un­cer­tainty re­mains. But, he stressed, he won’t change his plans to keep the stim­u­lus flow­ing for one more year and then turn off the tap.

“ We don’t in­tend to do more stim­u­lus other than what we com­mit­ted to,” he said.

“ This coun­try looks so great, com­pared to most of the other west­ern in­dus­tri­al­ized coun­tries. Our debt to GDP ra­tio is some­thing like 30 per cent, the Amer­i­cans are ap­proach­ing 60 per cent.”

In a speech later to a meet­ing of Cana­dian man­u­fac­tur­ers and ex­porters, Fla­herty said the coun­try will “exit the re­ces­sion in a very com­pet­i­tive po­si­tion vis-a-vis other coun­tries around the world.”

CIBC chief econ­o­mist Avery Shen­feld backed Fla­herty’s plan, say­ing the stim­u­lus was still needed in the short term, given the 8.5 per cent job­less rate and the lack of pri­vate sec­tor in­vest­ment, but next year Ottawa should turn its at­ten­tion to the deficit.

The new eco­nomic con­sen­sus is that Canada will grow by 2.6 per cent this year and 3.2 per cent next year, slightly lower than the Bank of Canada’s pro­jec­tions of 2.9 per cent and 3.5 per cent re­spec­tively.

Fla­herty said he in­tends to un­veil gov­ern­ment’s “path” for get­ting out of the fis­cal hole in the March 4 bud­get, al­though he gave no es­ti­mate when that might be ac­com­plished.

In­dus­try ad­vo­cates said de­spite con­straints on gov­ern­ment spending go­ing for­ward, Fla­herty can still help the man­u­fac­tur­ing and forestry in­dus­tries through tax in­cen­tives to en­cour­age in­vest­ment in ma­chin­ery, equip­ment and green tech­nolo­gies.

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