Finance Minister Jim Flaherty vowed to devote more spending to infrastructure to boost the economy.

Flaherty vows project spending

LORI McLEOD AND JEFF GRAY,  Globe and Mail Update

TORONTO — Ottawa plans to use spending on infrastructure as a key initiative to boost the economy, Finance Minister Jim Flaherty said Monday, vowing to move as quickly as possible to get projects up and running.

Mr. Flaherty said at conference in Toronto that Canada is not yet in a recession but very well could be by the end of next quarter.

In turbulent times, the finance minister said, it is particularly important for the government to take measures to stimulate the economy. Infrastructure spending, he said, will be one of the primary measures used to create jobs.

Mr. Flaherty said accelerating infrastructure was a “key component” of spending for stimulus purposes, arguing that the government had already committed to a massive $33-billion infrastructure fund, but that the timing of the spending needed to be moved up.

“This needs to happen as soon as possible,” he said. “We are working with the provinces, the territories, the municipalities, to accelerate our infrastructure investments.”

“Infrastructure is clearly one of the areas where we have some substantial funding committed where the quicker we can get processes underway the more it will help on the employment side, and the more it will help in terms of the movement of goods and services,” Mr. Flaherty added.

Speaking after his address to a Toronto conference on public-private partnerships, Mr. Flaherty corrected reporters who asked him about a recession, stressing that Canada may be in a “technical recession” if this quarter and the next quarter show negative growth, resulting in most economists' definition of a recession.

“We are not in a recession right now. Going forward I think it's reasonable that we may have a technical recession,” he said.

He said any Canadian bailout for the auto industry would be dependent on proof that the North American auto sector would find a way to stand on its own.

“The key here is that we need to see a bridge to sustainability for the Detroit Three. If there's not that demonstrated bridge to sustainability to survivability, then I think most Canadians would not want their tax dollars to be put forward in a way that would not be fruitful.”

Mr. Flaherty also said that this week's economic update would be “just that” and not include any major moves meant to stimulate the economy, but budgetary measures, such as a cap on public sector salaries, may be included.

Mr. Flaherty's comments came as yet another research report, this one by Goldman Sachs, cut its outlook for the Canadian economy.

The investment bank said it expects the economy to contract in the fourth quarter by 1.5 per cent at a annual rate, followed by a similar contraction in the first quarter of next year and no growth in the second quarter.

This should push the unemployment rate to more than 7 per cent by mid-2009, Goldman Sachs said.

The bank called for more support and projected the Bank of Canada will cut interest rates by another half a percentage point by the end of the first quarter.

Goldman Sachs also said it expects the government to run its first budget deficit in more than a decade, and Prime Minister Stephen Harper's willingness to do this is good news.

“Canada has established a reputation for fiscal prudence and now is the time to draw on that credibility in a responsible way, rather than attempt to run budget surpluses throughout the cycle,” Goldman Sachs said.