Recovery seen in peril as growth stalls

TheStar.com – Business – Recovery seen in peril as growth stalls: Report argues that federal government should pump more money into fixing roads, bridges to create jobs
Published On Thu Oct 29 2009.  Madhavi Acharya-Tom Yew, Business Reporter

The Canadian economy is still stuck in neutral and recovery is far down the road, according to a report set to be released Thursday by the Canadian Centre for Policy Alternatives.

The federal government needs to deliver on stimulus pledges and continue spending to support the economy, the group said.

“The traditional engines of private-sector expansion – investment, exports and construction continue to stall. Public investment has been essential to stabilizing Canada’s economy. Without it, Canada would have fallen deeper into recession,” reads the report, titled Canada’s Long Road to Economic Recovery.

“More is needed to steer Canada through to recovery.”

The study comes as economists await Canada’s gross domestic product numbers for August, which will be released Friday.

Many believe it will be a weak result that will call into question the Bank of Canada’s prediction of a 2 per cent increase in the third quarter. Some economists are even expecting a contraction.

The private sector accounts for about 85 per cent of the GDP, said Canadian Auto Workers economist Jim Stanford, who is also a research associate with the CCPA, a left-wing think-tank.

Exports of goods and services fell by more than 8 per cent in the second quarter alone, and by a stunning 27 per cent compared to the previous year. Business investment is also still declining rapidly.

“For a genuine recovery you’ve got to have a broad momentum in the private sector of our economy and there’s no signs that is happening,” Stanford said.

“Regardless of what number we see on Friday, and I’m not very optimistic, qualitatively, we’re stuck in the muck.”

In June, the GDP increased by 0.1 per cent, and the following month, Bank of Canada governor Mark Carney declared confidently that the recession in Canada was already over. In July, GDP was unchanged.

The report also charges that promises of spending to stimulate the economy have fallen drastically short.

The Conservative government pledged $18 billion in infrastructure spending in 2009, but only a fraction – 22 per cent – of that money has actually been spent, said the CCPA’s David Macdonald.

Potential projects and funding have been bogged down in red tape, including requirements that local and provincial governments match federal spending, Macdonald added.

“When it comes to getting that money out the door, it seems the commitment just isn’t there. This money is committed in government reports but they haven’t spent it.”

That has lead to higher unemployment in the short-term, and could put future growth at risk, Macdonald said.

“We’re not setting the foundation for future growth once we emerge from this recession. We’re not fixing our roads, our bridges, our social infrastructure.”

For Canada to pull itself out of the recession, the government must spend more on infrastructure to create jobs, the report said.

This could be followed by massive investments in everything from roads and bridges to housing and health-care improvements.

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