Canada May Need More Stimulus as Growth Slows, Opposition Lawmakers Say

Canada’s sagging economic recovery means Prime Minister Stephen Harper should ready an extension of stimulus measures, lawmakers from the three opposition parties said.

Canada’s economy grew at a less-than-expected 2 percent rate in the second quarter, Statistics Canada said yesterday, one third the pace of the previous quarter. Government spending was responsible for a quarter of the growth rate, its smallest contribution since 2008, the government agency said.

Slower growth comes less than a year after Harper’s stimulus measures powered Canada’s economy out of recession, and show efforts to support the economy are beginning to fade and drag down growth. Harper needs opposition support to pass legislation and stay in power because he leads a minority government.

“The government should not be going full steam ahead to slam on the fiscal brakes,” John McCallum, the opposition Liberal Party’s main economic spokesman, said in a telephone interview. The government should have a “plan B.”

McCallum, whose Liberal Party is the second biggest in Parliament, said the government’s exit from stimulus may be “premature.”

New Tax Credits

Thomas Mulcair, of the New Democratic Party, said in a separate interview that Harper should reintroduce a home renovation tax credit and extend other stimulus measures due to expire next year.

The Bloc Quebecois, which focuses on issues affecting Canada’s French-speaking province, wants Flaherty to implement assistance programs for the forestry and manufacturing sectors and provide more funds to fight homelessness, said Daniel Paille, the party’s finance critic and Canam Group Inc.’s former chief financial officer.

“Our worry is that growth isn’t uniform and that the regions that haven’t benefited from the start of the recovery will get hurt even more,” he said. When Treasury Board President Stockwell Day “brags that the deficit will be erased a year ahead of schedule, someone should tell him that he’s not managing a private company but a government, and that the budget spending is needed now,” he said.

Fiscal Room

McCallum, Mulcair and Paille said the improving fiscal outlook creates scope for more stimulus measures. Canada recorded a deficit of C$7.2 billion ($6.9 billion) in the first three months of its current fiscal year, compared with C$12.5 billion a year ago.

“They should definitely use some of the fiscal room to maintain the stimulation,” Mulcair said.

The three lawmakers also said the government should extend its March deadline on stimulus funding for infrastructure projects that have yet to be completed.

Statistics Canada data show the country’s recession, which ended in June last year, would have extended into the third quarter without a pick-up in government spending, while public expenditures were responsible for almost half the country’s 4.9 percent growth rate in the fourth quarter.

“It’s unlikely that government spending is going to add much more to growth through the remainder this year and early next year, and it will become a drag in 2011,” Doug Porter, deputy chief economist at BMO Capital Markets in Toronto, said in a telephone interview. “What could raise the case for more government stimulus is if the U.S. and Canadian economy stumble more heavily in the months ahead.”

‘Right Track’

Investments by all levels of government in the first half rose at one-fifth the pace recorded in the final six months of 2009, according to figures from the government statistics agency.

Finance Minister Jim Flaherty said in a statement yesterday following the GDP report that the numbers show Canada’s economy “is on the right track” and creating jobs.

Asked at a press conference Aug. 27 whether an economic slowdown could warrant additional stimulus measures, Flaherty said the government’s priority is to complete its current stimulus package, which expires in March.

“We’re on track in terms of execution, implementation of our stimulus plan in Canada,” Flaherty told reporters in Dublin. “So I think we’ll just stay on track.”

To contact the reporters on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net; Ilan Kolet in Ottawa at ikolet@bloomberg.net

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