OTTAWA — A new international forecast putting Canada at the forefront of growth among advanced industrialized economies shows there is no need for a second round of government stimulus spending, federal Finance Minister Jim Flaherty said Wednesday.
“We don’t need any further stimulus in the Canadian economy at this point,” Flaherty told reporters.
“There’s no intention to extend stimulus programs,” added Flaherty, who in recent days has moderated an earlier position against extending stimulus for infrastructure projects in cases where they are not completed on time.
And last week, he scaled back the size of scheduled increases in employment insurance premiums to less than half, in a nod to critics who complained the hikes would kill jobs by taking money out of the pockets of employers and employees alike.
But the firm rejection of further measures suggests the upcoming economic update this fall, and next year’s spring budget, is likely to stress government restraint rather than spending.
Flaherty’s remarks followed a new global outlook from the International Monetary Fund that predicted Canada’s economy will advance 3.1 per cent this year and 2.7 per cent in 2011, both downgrades from earlier expectations.
Still, that’s better than all other G7 countries, with only forecast gains of 3.3 per cent and two per cent for Germany coming close to Canada’s two-year cumulative advance.
Flaherty said governments had done their job to stabilize the economy when the global crisis hit in the fall of 2008. Now it’s the private sector’s turn.
“The private sector has to reassert itself and take up that slack as government eases out of stimulus. We do need to ease out of this government stimulus situation.”
Sustaining the global economy will be the key issue before officials of the IMF and the G7 finance ministers meeting in Washington this week, Flaherty said.
The meetings also promise to feature a showdown between advanced and emerging economies over trade-distorting currency exchange rates.
The U.S., Canada and Europe contend China and others artificially keep the value of their currencies low in order to boost exports and limit production in advanced economies which find themselves unable to compete even in their home markets.
The IMF forecast does nothing to dispel the notion that global imbalances are having an impact on how the world comes out of recession.
The Washington-based agency predicts emerging countries will expand growth by 6.4 per cent next year, while advanced economies collectively inch forward at just 2.2 per cent. China is expected to grow by 9.6 per cent.
The IMF devotes only a few paragraphs to Canada in a report that extends over 100 pages, noting that household finances are healthier than in the U.S., its banks are solid, growth relatively strong and that housing prices have held up.
“However, recent data indicate a moderation in growth, which nonetheless seems to remain above potential,” the report said.
The IMF added that whatever risks there are to Canada’s economy, they will come from outside, through a dip in commodity prices, or a severe slowdown in the United States.
But it says that should conditions worsen unexpectedly, Ottawa is in a position where “fiscal policy would be able to respond.”
Canada’s federal deficit is projected to be a relatively small 2.9 per cent of gross domestic product — compared with 10 per cent in the U.S. — and net debt is hovering at 33.5 per cent of GDP, well below the U.S. and other G7 economies, the IMF says.