Canada faces recession unless US avoids fiscal cliff-Flaherty

Wed Nov 7, 2012 3:39pm EST

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* Flaherty says all G20 countries very concerned

* Expects 11th hour deal in Washington

OTTAWA Nov 7 (Reuters) - Canada will fall into recession if Washington does not reach a deal by year-end to avert the so-called fiscal cliff, Finance Minister Jim Flaherty said on Wednesday.

Unless the White House and Congress agree how to cut the U.S. budget deficit, a $600 billion package of tax increases and spending cuts kicks in automatically at the end of 2012.

"Were the entire fiscal cliff risk to become reality, the effect on U.S. GDP, according to the Americans themselves, would be 4 to 5 percent, which would put the U.S. economy into recession quite quickly and the Canadian would follow shortly thereafter," Flaherty told reporters in Ottawa.

"We're all concerned that it's an immediate problem within the next 60 days that needs to be dealt with."

Flaherty was referring to the Group of 20 leading world economies, which wants the United States to ensure its budget is sustainable in the long term "while avoiding a sharp fiscal contraction in 2013." [ID: nL1E8M5CNL]

Canada recovered from recession faster than the United States, but its continued expansion relies heavily on the United States continuing to buy three-quarters of its exports.

As he headed into the G20 meeting on Monday, Flaherty warned for the first time about a potential recession.

He also said he was confident that whoever won Tuesday's presidential election would succeed in brokering a deal with Congress, but not without some brinkmanship.

"They may not deal with it until the 11th hour and the 55th minute, but I expect that they'll do it just as they dealt with their banks in 2008," he told reporters. [ID: nL1E8M40RO] [ID: nL1E8M502P]

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