OTTAWA — Canadian governments can afford and should do more to stimulate the faltering economy that is expected to shrink a massive three per cent this year, says the OECD.
In a gloomy outlook for Canada and even worse one for most other industrial countries, the Organization for Economic Co-operation and Development says Canada and Germany in particular should spend more on trying to arrest the economic slide.
And it urges the Bank of Canada to cut interest rates to the bone and then consider increasing the money supply through so-called quantitative easing, something the central bank has already signalled it is reviewing.
The report comes as Statistics Canada issued the January gross domestic product numbers confirming the economy continues to plunge, down 0.7 per cent in January, a contraction that likely will result in seven or eight per cent GDP loss in the first quarter.
The OECD credits the federal government’s $40-billion stimulus over two years, but adds: “Nevertheless, the strong position that has been established by sustained fiscal surpluses provides scope for further action.
“Likewise, the remaining limited scope for further cuts in policy interest rates should be used and quantitative easing measures considered” by the Bank of Canada.
The international think tank representing 30 of the world’s richest countries says Ottawa should look to increasing income support for laid-off workers, a key opposition party criticism of Stephen Harper’s January budget.
The budget extends unemployment benefits five weeks but does not hike payments or loosen entry requirements, as opposition parties want.
“We’re quite concerned that we’re not really spending to get us out of this mess,” said NDP finance critic Thomas Mulcair, adding that much of the federal stimulus is contingent on the provinces and municipalities having the money to ante up, which he called a dubious assumption.
But the Conservatives protest the criticism is unfair because the stimulus has not been given time to work since the new fiscal year begins Wednesday.
“This stimulus isn’t even out the door yet… and the finance minister is on the record saying if we need to do more, we will do more. But let’s get this money out the door,” responded Ted Menzies, the parliamentary secretary to Finance Minister Jim Flaherty, who was flying to London for the meeting of G20 countries.