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Flaherty to stick by budget-balancing plan
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Toronto Star- Insisting that Canada can ride out the storm on global financial markets, Finance Minister Jim Flaherty says the federal government has no intention of backing away from its deficit-slashing plans.
While critics question if this is the right time to remove stimulus from the Canadian economy, Flaherty said the government will continue with its strategy of cutting spending by $4 billion annually.
“We will stay the course,” he said as he convened a closed-door policy conference Wednesday. “We will stay on track. We will continue with the plan.”
Flaherty spoke as investors gave Canadian stocks a bit of a vote of confidence as the Toronto Stock Exchange bucked the trend of market carnage abroad.
The S&P/TSX composite index gained 89.63 points to 12,198.89, adding to a 438-point jump Tuesday. The Toronto market closed higher with help from gold stocks as fresh worries about the European debt crisis pushed bullion further into record territory.
However, it was another grim day on Wall Street as investors also turned their attention back to the weakening U.S. economy.
The Dow Jones industrials plunged 519.83 points to 10.719.94. The NASDAQ composite index lost 101.47 points to 2,381.05 while the S&P 500 index lost 51.77 points to 1,120.76. Stock prices were also off across Europe amid fears of spreading debt troubles.
“Despite renewed uncertainty generated by concerns about the U.S. economic and fiscal situation and the continuing debt problems in Europe,” Flaherty said, “the Canadian economy is performing relatively well in relation to most other countries.”
There are “obvious risks” arising from the global turmoil but “Canadians can be confident that our country is well positioned to face global economic challenges,” he remarked.
Economists said Canada is being spared the worst of the market downturn — as least for the moment — because of the attractiveness of its commodities and a solid banking sector.
“The commodities are doing very well,” said Scotia Capital economist Derek Holt, noting that oil and gold prices both rose Wednesday. “So our TSX is all resources and, secondly banks, so that would help insulate us relatively better than elsewhere.”
Canada may be getting a boost from its relatively healthy economic fundamentals as well.
Despite the iffy recovery in the United States, Canada's largest export market, the Canadian economy is expected to expand in the range of 2.8 per cent this year. Unemployment, at 7.2 per cent, is well below the U.S. jobless rate. And Prime Minister Stephen Harper's government has laid out a plan to get rid of its budget deficit within a few years.
“At least we have a reasonably credible exit plan” from debt financing, Holt said. This is in contrast to the U.S. and Europe, “where the general tendency is not to have any plan whatsoever.”
After pumping billions of extra dollars into the economy over the past two years, and with a $32 billion deficit planned this year, the government is committed to trimming federal spending in hopes of balancing the books by the end of 2014, Flaherty said.
“Our focus is on creating the right conditions for more jobs and stronger economic growth,” he said. “Now this starts with sound public finances.”
Opposition MPs said Flaherty's determination to slash spending is too rigid given current economic circumstances.
“I don't think it makes sense,” said New Democrat finance critic Peggy Nash. “The last thing we want is to be caught in an ideological approach.
“I would have liked to have heard that he is flexible in terms of adjusting the government's approach based on the impact of the downturn with our major trading partner, the U.S.,” Nash said.
Rather than spending cuts, the NDP would like to see more federal spending on major infrastructure projects, business innovation and job training, she said.
Doug Porter, the deputy chief economist at BMO Capital Markets, said Wednesday marked the first time that the markets appeared to distinguish Canada's economic fundamentals from the fiscal and economic troubles in the U.S. and Europe.
But he warned that it's impossible to tell if this difference in investor perception will continue. “We're not going to escape the riptide from the U.S.” if the American economy worsens, Porter added.
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