Economy weaker than predicted, but no second stimulus: Flaherty
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.