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Flaherty Sees Canada Recession Without U.S. Fiscal Deal

Canadian Finance Minister Jim Flaherty said Canada would enter a recession if U.S. policy makers are unable to reach an agreement to avoid fiscal tightening scheduled for January.

Speaking to reporters in Ottawa, Flaherty said he spoke today to Treasury Secretary Timothy Geithner about the issue, adding he is concerned about the impact on Canada at a time when the country is already experiencing “modest” growth. He did not give details about their conversation.

“There is good reason for concern in the next quarter or so if that issue is not resolved satisfactorily,” Flaherty told reporters today in Ottawa.

Flaherty, who said he’s seen signs of softening in the country’s economic growth, told reporters there could be some “bumpy” times ahead for the economy as the U.S. negotiations continue. Flaherty is meeting on Dec. 16 and Dec. 17 with provincial finance ministers to discuss the Canadian economy and other issues.

One of the issues on the agenda is an expansion of the country’s pension plan, said Flaherty, adding he opposes any efforts now to raise premiums for workers because of the weak economy.

Asked about rating downgrades of Canadian lenders yesterday by Standard & Poor’s, Flaherty said the decision reflected concerns about the country’s housing market and which is why the government has moved to tighten up lending growth.

“As you know, we’ve seen some softening in the market,” Flaherty said. “I think that’s desirable. We want to avoid a hard landing.”

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