Flaherty sees U.S. deficit as biggest threat to recovery
by investor on 15/06/09 at 12:04 am
The biggest risk to Canada’s economic recovery is not the rising dollar or climbing oil prices, but the burgeoning U.S. deficit, Finance Minister Jim Flaherty said at the close of the Group of Eight finance ministers meeting.
Although Canada is showing signs of renewed economic life and better consumer confidence, Mr. Flaherty said “I worry about the slowness of the recovery in the U.S. I worry about the size of the U.S. deficit, which is approaching US$2-trillion this year.”
His comments came as the statement issued by the G8 finance ministers, meeting in the baroque city of Lecce in the heel of Italy, noted “signs of stabilization in our economies, including a recovery of stock markets, a decline of interest rate spreads, improved business and consumer confidence.”
But they warned that the “significant risks remain” and urged the G8 countries not to abandon their economic overhaul packages, such as stimulus spending, to secure the recovery.
The finance ministers of the world’s eight largest economies said they were generally more bullish about widespread recovery than they were even a few months ago, as stimulus spending kicks in, though they warned that unemployment could still climb because of the lag effect. “All of us believe we are right to confident, that we will get through the global recession,” Alistair Darling, the British chancellor, told reporters. “But we are right to be cautious…We are mindful that we live in an uncertain world.”
Mr. Flaherty said he fears that any failure to rein in the U.S. deficit could trigger a credit downgrade, which in turn would force interest rates up and delay both the American and Canadian recoveries. Earlier this month, Ireland received a fresh blow to its economy and its image when Standard & Poor’s cut the rating on the country’s sovereign debt for the second time in three months.
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