Economists urge politicians to focus on fiscal stimulus

Canada’s economy needs fiscal stimulus to boost growth to become more competitive, economists at a conference in New York said as the country’s election heads into its final stretch.

“Canada has to embark at the federal level on far more aggressive strategies beyond just having corporate tax rates edge lower, towards creating incentives to really build the infrastructure,” David Rosenberg, chief economist at Gluskin Sheff + Associates, said at Bloomberg LIVE’s Canadian fixed income conference.

The economy will see a pick up in the second half of the year after contracting in the first two quarters, but faces several long-term challenges including weak competitiveness as economies like Mexico and China come on strong, according to Chen Hoon Lim, mission chief for Canada at the International Monetary Fund.

“There are some vulnerabilities in the housing sector, we saw household debt has climbed up to a historical level,” Lim said at the conference. “One of the things the new government will have to think about is: We need to support growth, but at the same time we need to address the vulnerabilities in the housing sector.”

The Liberals, led by Justin Trudeau, have proposed raising taxes on higher-income earners and cuts for the middle class as well as deficit spending on infrastructure and other measures to boost growth. The NDP favors balanced budgets and is the only major party calling for a corporate tax increase. The incumbent Conservatives are pledging to stay the course, with balanced budgets and no tax increases.

Voters go to the polls on October 19.

Canadian gross domestic product is forecast to expand 1.1 percent this year, the weakest since a contraction in 2009, according to estimates compiled by Bloomberg.

“The government’s now poised to run surpluses two years in a row at a time when the economy is still clearly under- performing expectations,” said Rosenberg. “And that’s the problem.”

MBN

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