Canada’s PM Rejects Stimulus To Solve Economy’s Downturn: Mulls Fiscal Discipline

Reacting to Canadian economy’s so called "downturn" in successive quarters, Prime Minister Stephen Harper has said he will not be pumping billions of dollars as 'stimulus spending' into the economy. The PM’s comment came in the wake of reports that country is mired in a slump with many banks declaring Canada having slipped into recession. A Statistics Canada report also fuelled this, after the economy shed 6,400 jobs in June.

Speaking at an event in Pickering, Ontario, the PM refused to accept the label of recession engulfing Canada’s economy. Rather, he blamed the decline to the ills in the global economy and drop in oil prices. “Let me just state clearly what the situation is, there has been a downturn and the reason for that has been the downturn in the global economy. We do not spiral ourselves into deficit so that we have credit downgrades. We do not start hiking taxes on business so that we have an investment freeze," said Harper.

Stumulus Advocated

But economists see a point in Ottawa injecting a new stimulus to lift the economy before it slides further. "This is the time when the government has the opportunity to indeed step up spending for significantly important infrastructure, and with interest rates low it costs very little," Sherry Cooper, chief economist for Dominion Lending Centres. Canada's GDP contracted for the fourth straight month in April. By definition, a recession is negative growth in two quarters. Experts advocate massive stimulus spending is a safer choice than rate cuts.

“Household debt in Canada is at an extremely high level, so it's not clear how much stimulus you would get from a rate cut," said Charles St-Arnaud, executive director of Foreign Exchange Research and Economics. Statistics Canada revealed that the country's trade deficit grew to CA $3.34 billion in May and the trade balance is heading for a record deficit in the second quarter.

With only 100 days left for the October election, the economy could be the defining issue for the PM's party. “They want to take credit for the economy but they blame every other party, every other fact when it's not going well and they have to take responsibility,” said NDP MP Don Davies.

Fiscal Discipline

The Prime Minister said the government can react with “strong fiscal discipline” to address the manifested downturn in the economy. Harper also pointed to the problems in big economies. He said a crisis is brewing in Europe, there is a significant slowdown in China and the United States has faced negative first quarter growth. “So those things have obviously affected this country and in particular through oil prices and some commodity prices," Mr Harper asserted.

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