OTTAWA — The International Monetary Fund is declaring the worst global recession since the Second World War over, but warns that the recovery will be sluggish and hard choices — including higher taxes — will be necessary to sustain the economic rebound.
In an article to be published Wednesday, the international financing agency’s chief economist says the recession has drained government treasuries to such an extent that “in nearly all countries . . . higher taxation is inevitable.”
“The crisis has left deep scars,” writes Olivier Blanchard, citing corporate bankruptcies, financial systems that have become partly dysfunctional, and the need for households in the United States to start saving again.
“All this means that we may not go back to the old growth path, that potential output may be lower than it was before the crisis.”
The assessment echoes the Bank of Canada’s latest outlook in July, when governor Mark Carney all but declared the recession in Canada over while also warning that the economy will emerge smaller and with a reduced output potential.
Canada has had three quarters of economic shrinkage — two successive quarterly declines is a technical definition of recession — so expected growth in the current summer quarter means the recession is over. However, employment growth is expected to lag and further job cuts are expected for several more months.
The IMF’s view that governments will have to raise taxes flies in the face of the public assurances of Prime Minister Stephen Harper and Finance Minister Jim Flaherty.
Both have insisted economic growth alone will be sufficient to eliminate the deficit over the next few years
Toronto economic consultant Dale Orr agrees that Ottawa can avoid raising taxes, but he says Canadians should be aware of what this means.
Orr and several other private sector economists have called Ottawa’s deficit projections out of date.