Harper sounds recession warning, calls APEC's 18-month timeline ‘premature'
Published Sunday November 23rd, 2008
LIMA, Peru - Canada faces the prospect of falling into a "technical recession" and Ottawa might have to take unprecedented actions to stimulate the faltering economy, Prime Minister Stephen Harper said Sunday.
"The most recent private sector forecasts suggest the strong possibility of a technical recession the end of this year, the beginning of next," Harper told a news conference at the conclusion of the Asia-Pacific Economic Co-operation summit in Peru.
"Yes, I am surprised at this. I'm also further surprised, more importantly, by deflationary pressure that we're seeing around the world. This is a worrying development, one of the reasons why it may well be necessary to take unprecedented fiscal stimulus."
Harper wouldn't elaborate on what measures the Conservative government might take to stimulate the economy. But he said he would have to be convinced that any infusion of government money into Canada's economy would be effective, and that the action wouldn't result in a prolonged deficit.
Harper was replying to a question about comments made earlier Sunday by his finance minister, Jim Flaherty, who told CTV's Question Period the Canadian economy could be on the verge of a "technical recession."
Economists define recession as two consecutive quarters in which the economy shrinks instead of grows. Under this definition, an economy could be technically in recession even though the shrinkage is relatively mild.
"It's quite possible that Canada will be below the line slightly in both of those quarters," Flaherty said.
"Canada is doing better than everybody else, but we're not an island ... We're likely going to see more unemployment in Canada, we're likely going to have to provide further stimulus to the economy," said Flaherty, who is due to deliver an economic update to Parliament later this week
Harper said the federal government is not planning a deficit, but the public should be educated to take a "somewhat less simplistic view" about fiscal shortfalls.
"Deficits are generally bad, but there are occasions in which deficits are not necessarily bad, but in fact they are essential," he said. Short-term deficits could be as a means to help the economy get through an economic rough patch.
"We are talking here about the development of economic conditions around the world and in the industrialized world that we have not seen in over 70 years," Harper said.
"We have not seen this kind of quick slowing of economic growth with widespread deflationary pressures. This has not been seen in any time in the post-war period."
In contrast to Harper's gloomy outlook, the APEC summit of 21 Pacific Rim countries concluded Sunday with a declaration that the global financial crisis can be overcome in 18 months - by mid-2010.
"We are convinced that we can overcome this crisis in a period of 18 months," reads an amendment to the joint statement released earlier in the weekend. No explanation was given for the one-line addition, and the prediction prompted skepticism from some delegates and economists.
Harper said the line came at the behest of Peruvian President Alan Garcia, chairman of this year's summit.
Asked what he thought about the prediction, Harper replied: "We're obviously entering ... a period of severe slowdown in economic growth with deflationary pressures, particularly in the industrialized world. And I think it would be premature to speculate on that kind of a timeline."
Mexican President Felipe Calderon described the date as more of an estimate than a prediction. Other delegates suggested the timeline might be wishful thinking.
But the projection fits with a calculation by the International Monetary Fund, which forecast developed economies would grow barely 0.1 per cent in 2009, and that the world would emerge from the crisis the following year.
In Ottawa last week, Parliament's budgetary officer predicted the government will record the first federal deficit in 17 years with a $3.9-billion shortfall next year.
Several economists have predicted Ottawa's deficit could rise to $10 billion in the 2009-10 fiscal year, which begins in April, with only a slight improvement for the 2010-11 financial year.
Bank of Canada governor Mark Carney also recently said Canada could soon fall into a recession.
At the Lima summit, APEC leaders also changed their statement to say they would send their ministers to Geneva next month to jumpstart the so-called Doha round of World Trade Organization talks.
The free-trade negotiations began seven years ago but have been stalled by disputes between developed and developing countries.
APEC leaders, who collectively represent more than half the world's economy, pledged to reduce the gap between emerging and developed economies.
They made a commitment to ensure that small-and medium-sized companies have enough credit to keep trade and investment flowing in the region.
Earlier this weekend, the Pacific Rim countries endorsed a broad action plan adopted in Washington by the Group of 20, which was aimed at combating the global economic meltdown.
The APEC leaders pledged to refrain from putting up any new trade barriers for 12 months.
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