Conservatives defend economic plan in face of gloomy forecast

Members of the Conservative government had to go on the defensive Tuesday over their handling of the economy, hours after the Bank of Canada released a pessimistic economic forecast.

Finance Minister Jim Flaherty responds to questions in the House of Commons Tuesday.(Fred Chartrand/Canadian Press)

The Bank of Canada said Tuesday the recession in Canada will be deeper than anticipated, with the economy projected to contract by three per cent in 2009. The bank now expects the recovery to be delayed until the fourth quarter and to be more gradual.

The new assessment marks a significant change from the bank's January forecast, which predicted a contraction of 1.2 per cent this year, followed by growth of 3.8 per cent next year.

Prime Minister Stephen Harper, asked about the forecast at a news conference in Jamaica, said it was one of a number of different economic assessments his government has received.

Speaking in French, he said it's difficult to get a true assessment of the economy and "the situation changes very quickly."

The $40-billion stimulus package introduced by the government in the January budget gave the economy an ample boost, Harper said.

"[The stimulus package] has been developed for a situation that was much worse than the situation that we had predicted in January," he said.

"But we will constantly be examining the situation, certainly with respect to jobs, and we will make changes if need be."

Sparring with the NDP

NDP Leader Jack Layton, speaking during question period in the House of Commons, said later that the Bank of Canada's gloomy outlook showed that the stimulus package wasn't working well enough.

"Faced with the mounting evidence … is the government going to still cling to its old approach of just crossing its fingers and leaving the middle class to struggle for itself, or is it going to actually take some action, finally understanding that Canada is going to need a second stimulus package?" he asked.

Finance Minister Jim Flaherty, who hasn't closed the door on the possibility of additional stimulus spending, retorted: "I don't know why the member would ask for a second stimulus package when he voted against the first one."

Layton said he didn't vote for the first stimulus package because he knew it wouldn't work. Voicing a criticism he has used increasingly in recent days, Layton said the government isn't doing enough to ensure laid off workers can get access to employment insurance.

Human Resources Minister Diane Finley said the government has spent an additional $60 million to help process the growing number of EI claims, and has increased benefits by five weeks.

The government has also "markedly increased the possibilities and opportunities for people to access retraining, to get a new job in the future," she said.