* Carney: monetary, fiscal stimulus possible if no US deal
* Flaherty says Canada would face another recession
* Expects 11th hour deal in Washington
OTTAWA, Nov 7 Canada will fall into recession if
Washington does not reach a deal by year-end to avert the
so-called fiscal cliff, but t h e Ca nadian go vernment and central
bank could provide extra stimulus if necessary, p olicymakers
said on Wednesday.
Unless the White House and Congress agree on 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 and
would threaten U.S. economic growth.
"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," Fina nce Minister Jim Flah erty told reporters in
Canada's economy recovered from the global recession faster
than that of the United States, but it remains heavily reliant
on trade with its neighbor, which buys three-quarters of its
Bank of Canada Governor Mark Carney said policymakers would
have several options to protect Canada from fiscal calamity
south of the border.
"We can provide stimulus on the monetary side, the
government could take measures, other things could happen, but
we don't need to do that in anticipation of the Americans not
coming to an agreement, an agreement that is in their own
interest," Carney told the Canadian Broadcasting Corporation in
"We're going to watch this closely ; we'll react if necessary
but we're not going to react to a hypothetical at this stage,"
Carney said President Barack Obama ha s a "strong mandate" to
engage his opponents on the fiscal cliff issue, helped by the
Democrats holding onto a majority in the Senate.
The central bank's forecast of 2.3 percent economic growth
in the United States next year assumes a drag of 1.5 percentage
points from fiscal tightening on the expectation some kind of
bipartisan deal is struck. But Carney said that prediction was
As he headed into a Nov . 4-5 G20 meeting in Mexico City on
Monday, Flaherty warned for the first time about a potential
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.