More bad economic news from the United States and growing fears of recession in the U.S. and Europe have rocked markets and renewed pressure on Finance Minister Jim Flaherty to deliver calming words at a Friday committee appearance in Ottawa.
The United States reported a drop in home sales and slowing factory activity Thursday. The price of oil dropped more than 7 per cent to close at $81.30, a sign of trouble ahead for a key Canadian export should demand remain weak in the United States – Canada’s biggest trading partner.
It now falls to Mr. Flaherty to soothe nervous markets with what is expected to be a stay-the-course message before the House of Commons finance committee. Acknowledging this bad news while insisting Canada’s deficit-fighting plans are on track will be a tough balance for the minister, whose appearance will be immediately followed by Bank of Canada Governor Mark Carney.
With a string of G7 and G20 meetings on the horizon for the fall, Mr. Flaherty can reasonably play for time as world leaders work the phones to determine whether new government action is required to calm global economic jitters.
The minister doesn’t have to formally release new budget projections until the fall economic update. Many analysts say that it is still too early to say whether Canada risks falling behind on its timeline to erase the deficit.
Brian Lee Crowley, managing director of the Macdonald-Laurier Institute think tank, chaired closed door policy retreat discussions last week with Mr. Flaherty and 22 leaders from business and academia. Mr. Crowley expects the minister will signal an openness to change course if necessary, but is unlikely to satisfy opposition MP demands for a detailed outline of what that Plan B would look like.
“Otherwise these things have an alarming tendency to be self-fulfilling,” he said.
As recently as Monday, Mr. Flaherty was stressing the need for world leaders to remain focused on getting debts and deficits under control.
“Getting public finances back onto a sustainable trajectory is central,” he wrote in a letter co-written with counterparts from Australia, Singapore, South Africa and Britain. Mr. Flaherty’s office was not commenting Thursday as to what the minister plans to tell the committee.
Employment has also rising steadily since the middle of 2009, bringing the unemployment rate down to 7.2 per cent. But Canada can’t help but take a hit if the picture remains grim for Canada’s top two trading partners.
Economists with Morgan Stanley warned Thursday that the U.S. and European economies are “dangerously close to recession.”