Stimulus to stay to 2011: Flaherty

World leaders are not yet ready to call and end to the economic crisis, Finance Minister Jim Flaherty said Monday, stressing there is no evidence a sustained recovery is under way despite recent gains.

OTTAWA — World leaders are not yet ready to call and end to the economic crisis, Finance Minister Jim Flaherty said Monday, stressing there is no evidence a sustained recovery is under way despite recent gains.

”We’re all agreed we have to continue to stimulate our economies, that there is not evidence of a firmly entrenched recovery, that it would be a major mistake for the developed economies not to continue stimulus,” Flaherty told reporters.

The comments come less than a week after the Bank of Canada reported the recovery in Canada is occurring stronger and faster than previously thought.

But while Flaherty did not dispute economic conditions had improved, his call for staying the course appears aimed at both underlining the importance of his government’s stimulus package, which runs out in April 2011, and warning of Liberal threats to disrupt the measures by triggering a fall election.

The minister got some support from data Monday that showed there is still plenty of slack in the economy. Statistics Canada reported the rate of industrial capacity utilization continued to shrink in the second quarter to just above 67 per cent, the lowest since data began being kept in 1987.

And a new paper from economists Arthur Donner and Doug Peters, a former Liberal junior finance minister, also cautioned ending the stimulus too soon, stressing that the Bank of Canada’s rigid adherence to fighting inflation could pose a risk to the fragile recovery.

”In our view, the Bank of Canada needs to broaden its formal economic policy objectives,” Donner and Peters write in a paper for the Canadian Centre for Policy Alternatives.

”The central bank must have a broader view of the economy and include employment and economic growth along with inflation as near-term objectives.”

The paper comes as analysts and policy-makers look for ways to avoid the pitfalls that led to what has been termed the Great Global Recession, and was released on the same day U.S. President Barack Obama urged Wall Street to learn the lessons of the crisis.

While the economy is returning to normalcy, Obama warned financiers of returning to the reckless and unchecked excess that caused the financial market meltdown.

Coincidentally, Bank of Canada governor Mark Carney has also mused recently that the institution’s mandate may need to be broadened to avert future crises.

In a high-profile speech to policy-makers from around the world last month, Carney talked of an emerging consensus that ”price stability does not does not guarantee financial stability.”

Bank of Montreal deputy chief economist Doug Porter said Carney’s speech was a stark departure and shows that the governor is open to changing the bank’s mindset.

”Almost every bank speech for the last 10 years had at least a paragraph talking about how the most important thing the bank can contribute to economic well-being is a stable price environment, but we learned in the last year and a half that’s not enough,” he explained.

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