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PM's economic flip: 'I've never seen such uncertainty'

From Tuesday's Globe and Mail

OTTAWA — Stephen Harper has delivered his bleakest forecast yet for the Canadian economy, warning yesterday the future is increasingly hard to read and conceding the possibility of a depression.

"The truth is, I've never seen such uncertainty in terms of looking forward to the future," the Prime Minister told CTV News in Halifax.

"I'm very worried about the Canadian economy."

When asked whether a depression might be possible, he answered:

"It could be, but I think we've learned enough about depression; we've learned enough from the 1930s to avoid some of the mistakes that caused a recession in 1929 to become a depression in the 1930s."

A recession is often defined as two consecutive quarters of shrinking economic output.

The definition of a depression is less established, but is considered to be a prolonged recession where output declines by more than 10 per cent.

Mr. Harper also confirmed in the interview that his January budget will push Canada into a deficit and include billions of dollars in spending, which he hopes to combine with provincial spending to boost the Canadian economy.

"Obviously, we're going to have to run a deficit," he said. "We're talking about spending billions of dollars that was not planned."

Mr. Harper's darker forecast was yet another shift in tone for the government on the economic story. Last Friday, for example, his ministers appeared to deliver contradictory messages on the speed with which the government should be reacting to the crisis.

Hours before Industry Minister Tony Clement called a hasty Toronto news conference to buck up the Ontario auto industry, the message emerging from Finance Minister Jim Flaherty was a plea to be patient with the Harper government as it planned a stimulus package.

"This is not a sprint," Mr. Flaherty told an audience in Saint John, preaching the virtues of "thoughtful consideration" before acting with stimulus.

Later that day, however, Mr. Clement, signalled that Ottawa was indeed moving quickly to help out auto makers, announcing the general outlines of a package that could lead to $3.4-billion in Canadian aid.

"The seriousness of the situation dictates that we be here this evening," Mr. Clement said of his last-minute appearance.

As chief salesman for Tory economic policies, Mr. Flaherty is often the one left taking the blame for conflicting messages on how the Conservatives will respond to the faltering economy.

This was the case in the Nov. 27 fall fiscal update. On Nov. 23, after months of insisting his government had already done much to stimulate the economy, Mr. Harper abruptly changed tone after an international leaders meeting in Peru. He warned reporters that "it may well be necessary to take unprecedented fiscal stimulus."

Four days later, however, Mr. Flaherty's economic update offered only a modest injection of assistance, while also announcing billions of dollars in budget cuts - the very opposite of fiscal stimulus.

"They moved in the wrong direction," IHS Global Insight managing director Dale Orr said yesterday.

The update prompted calls for Mr. Flaherty's resignation from some critics - and unease within the Tory caucus.

Aside from a lack of stimulus, the update also contained two politically explosive measures: a move to scrap per-vote subsidies for political parties and a bid to ban public-sector workers from striking.

"It was just outrageous and absolutely improper," said University of Western Ontario economics professor emeritus David Laidler, a member of the C.D. Howe Institute's monetary policy council.

"I was frankly very surprised because I thought Flaherty was a pretty competent guy."

Prof. Laidler, who emphasized he was speaking only for himself, said he thinks Mr. Flaherty should have stepped down after he was forced to withdraw the more controversial items in the face of unanimous opposition party rejection of the update.

"He should have resigned either because they were his policies and they were rejected so firmly he had to withdraw them - or they weren't his policies and he shouldn't have allowed them in his statement."

But one senior Tory aide said that Mr. Flaherty is not likely to lose his job because his office is compliant with the Prime Minister's wishes.

Mr. Flaherty spent an hour yesterday meeting with Liberal MPs John McCallum and Scott Brison, who said he conceded that the relatively rosy economic projections in last month's controversial fiscal update have been overtaken by worsening conditions.

"He certainly admitted that the economic situation has deteriorated since receiving the forecasts [for the Nov. 27 fiscal and economic statement.] He does agree that the forecasts were too rosy [given the deterioration,]" Mr. McCallum told The Canadian Press.

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