The global financial crisis may have pushed Canada's economy into a "technical" recession, Finance Minister Jim Flaherty said on Sunday, the first time the Conservative government has conceded that possibility.
"We may well be in a technical recession in the last quarter of this year and the first quarter of next year," Flaherty said in an interview with CTV television.
"It's quite possible that Canada will be below the line slightly in both of those quarters, which technically would be a recession."
Flaherty's remarks were later echoed by Prime Minister Stephen Harper at the close of the Asia-Pacific leaders summit in Peru.
Harper said it was possible that Canada has now entered a period of "technical recession" — defined by economists as two consecutive quarters of contraction.
Harper also said he was concerned by the emergence of rapid global deflationary pressure, which may force Canada's government "to take unprecedented fiscal stimulus."
"The most recent private-sector forecasts suggest the strong possibility of a technical recession the end of this year, the beginning of next," Harper said.
The government's latest economic assessment follows a speech by Bank of Canada Gov. Mark Carney last week in which he said the risk of recession was growing.
The central bank is likely to cut interest rates again to keep the export-reliant economy afloat in the face of a global recession and flagging consumer demand in the United States, Canada's main trading partner, Carney said.
BUDGET UPDATE ON THURSDAY
Flaherty is due to present updated fiscal and economic projections on Thursday.
In the CTV interview, the minister said the budget would stay balanced in the current fiscal year ending in March but a deficit was not out of the question beyond that.
"We're planning, and I'm certainly trying, to make sure that we can plan toward an operational surplus next year and the year after that. The challenge will be, of course, that we have to stimulate the economy further."
Flaherty also reiterated that any fresh economic stimulus would not come in his budget update on Thursday, saying he would consider such a package for next year's budget plan.
"We're not going to artificially balance the budget to avoid having additional stimulus," he said. "This is an economic problem that is global and it is serious and we all need to take the actions in our own countries to help the world economy recover."
