Canada could soon be in recession: Harper

Prime Minister Stephen Harper, centre, wearing a traditional Peruvian poncho at the Asia-Pacific Economic Cooperation summit in Lima.(Andrew Vaughan/Canadian Press)

Canada could be in a recession later this year or early in 2009, Prime Minister Stephen Harper said Sunday.

"Since the election, Minister of Finance [Jim] Flaherty has been consulting on a regular basis with experts in the private sector as to what their forecasts are for the economy," Harper told reporters after attending a two-day summit of the Asia-Pacific Economic Cooperation group in Lima.

"The most recent forecasts, and there has been a series of predictions, [are that] there is a suggestion that there might be a technical recession at the end of this year or the beginning of next," he said.

"Indeed, the economic growth is just about zero, perhaps a little bit less, but it is a technical recession," Harper said.

Economists define recession as two consecutive quarters of decline in gross domestic product, a scenario that Canada has narrowly avoided so far, despite deteriorating conditions in the United States and other western countries.

Flaherty will present updated fiscal and economic projections to Parliament on Thursday. He has said the update will contain no spending stimulus measures and those will come later when the official budget is unveiled in February or March.

He has also indicated the update will outline plans to rein in government spending — including a strategy to restrain the future growth of public service wages.

Deficit `sometimes essential'

Harper said Sunday that any stimulus package to deal with an economic slowdown linked to the global financial crisis must be effective and not set the stage for long-term or repeated budget deficits.

He would not rule out running a budget deficit in the short term, however.

"We've done a good job at educating the public that deficits are generally bad. Now, it's a less than simplistic view. Deficits are sometimes essential in deflationary conditions," Harper said, reiterating a statement he made Saturday.

During the recent election campaign, he had dismissed the likelihood of federal budget deficits.

Last week, Kevin Page, the parliamentary budget officer, reported that Ottawa is likely headed for deficits of around $3.9 billion next fiscal year and $1.4 billion the year after.

Page warned, however, that if economic growth lags far enough the deficit could go as high as $14 billion next year and continue in double-digits for three years after that.

With files from the Canadian Press