Possibility of small recession a worry to the Tories

Election chances could be hurt by small recession

The government is likely headed into the federal election campaign on the back of a small recession and may be unable to keep its promise to balance the budget in 2015, following a rocky analysis of the economy by the Bank of Canada Wednesday.

Political reaction came from all sides as the central bank cut its key interest rate a quarter- point to 0.5 per cent. It says in its Monetary Policy Report that the economy shrank in the first half of the year.

The slumping economy could prove a huge political headache for Prime Minister Stephen Harper’s Conservatives, who trumpet themselves as strong economic managers and the only political party that can be relied on going into the Oct. 19 vote.

Opposition parties charge that continued turbulence in the economy is a sign Tory policies aren’t working.

The Liberals want Finance Minister Joe Oliver to provide Canadians with an immediate update on the state of federal finances, which they say are undoubtedly back into deficit.

The Tories, however, are looking to use the economic news to their advantage, hammering the message that external factors are to blame and that NDP Leader Tom Mulcair and Liberal Leader Justin Trudeau can’t be trusted to run the country during volatile times.

“The global economy remains fragile and is being dragged down by forces beyond our borders such as global oil prices, the European debt crisis and China’s economic slowdown,” the Prime Minister’s Office said.

Overall, the Bank of Canada is predicting the economy will grow by 1.1 per cent in 2015, barely half of the two per cent growth the Conservative government projected in its April budget. Should this scenario play out, it could erode billions of dollars from federal revenues and turn the projected $ 1.4- billion surplus into a deficit. Harper’s government promised there would not be a deficit in 2015.

“Being in a ( possible) recession, given that you’re supposed to be a good economic manager, there’s a certain accountability that goes along with that,” said pollster Darrell Bricker, CEO of Ipsos Public Affairs.

Bricker said the country’s unflattering economic performance raises two separate issues for voters on the campaign trail.

One question is which party and leader Canadians think will do the best job of managing the economy during tough times. Data show “the Conservatives win way ahead on that,” he said.

However, there’s another question of competence, he said, “and that’s where this might bite.” Governments tend not to be re- elected when they’re in recession, he said.

The Bank of Canada and its governor, Stephen Poloz, wouldn’t label the economy’s slowdown in the first half of the year a “recession.” However, two consecutive quarters of shrinking GDP are usually characterized as a recession.

Liberal finance critic Scott Brison argued the latest data show Harper’s economic record “is in tatters,” saying Canada is the only G7 country to be tracking into a recession in 2015.

Bricker said Mulcair, far more than Trudeau, is best placed to gain from the Conservatives’ economic and fiscal challenges.

“When people want change, they vote for big change,” he said. “It benefits Mulcair because he’s the biggest change.”

The Conservative government is hoping its increase to the Universal Child Care Benefit — which will start landing in mailboxes Monday — will provide an economic and political boost going into the campaign.

Poloz says he expects the cheques will provide a “noticeable bump” to consumption spending in the third quarter.