September 30, 2011 / 8:50 PM / 6 years ago

FACTBOX-Key political risks to watch in Canada

Sept 30 (Reuters) - Canada’s governing Conservatives look reasonably secure for the next four years after their convincing victory in the May 2 election, although the uncertain world economy is a big worry.

The next federal election is due in October 2015. This means Prime Minister Stephen Harper can focus on a low-tax tough-on-crime agenda as well as an economy that is heavily reliant on currently weak U.S. markets.

WEAK OPPOSITION PARTIES

Canada’s two main opposition parties are operating under interim leaders, raising questions both about their future and about their ability to challenge the right-of-center Conservatives.

The left-leaning New Democrats, the main opposition party, are looking for a new chief after the sudden death in late August of party leader Jack Layton, easily the most charismatic federal politician in Canada.

His death raises questions about whether the NDP might merge with the centrist Liberals, who have governed Canada for longer than any other party but fell to distant third place in the May election. The Liberals are split over the idea.

The Conservatives are pressing ahead with a series of policies designed to cut crime and red tape as well as boosting competition for services. This includes plans to strip the Canadian Wheat Board of its marketing monopoly next year [ID:nS1E78R1CM]

The government also wants changes in the telecom sector and will not reappoint the current chairman of the federal communications regulator to a new term after clashes over Internet billing and foreign telecom investment. [ID:nS1E78Q1HX]

Ottawa is also cracking down on unions, making clear it is ready to pass back-to-work legislation quickly in case of strikes. [ID:nS1E78J1OB]

What to watch for:

* How well will a distracted opposition be able to fight the government’s agenda?

* Will the New Democrats stay together during a leadership race? Will the NDP manage to find a leadership candidate with the same level of charisma and political skill as Layton?

* Will the Liberals and New Democrats hold serious talks about merging? If there was a deal, could the new party beat the Conservatives in 2015?

* Will there be increasing public unhappiness about the Conservatives’ moves to quickly implement their agenda?

ECONOMY AND RECOVERY

The Canadian economy is acutely vulnerable to U.S. political and economic turbulence and the government says it is ready to launch a new program of stimulus spending in case of a new global shock. [ID:nS1E78R1MS]

Officials predict Canada can avoid slipping back into recession but are anxious about the fallout from the the European debt crisis. [ID:nS1E78M20M]

The crucial export sector is sluggish, hit by a strong Canadian dollar and weak U.S. demand. The economy is showing signs of life after shrinking in the second quarter. [ID:nS1E78T044]

Exporters are feeling some relief after the Canadian dollar - which for months was worth more than its U.S. counterpart - slipped below parity and then hit 12-month lows against the greenback. [ID:nS1E78T0MU]

The United States is a dominant factor and Ottawa is worried about President Barack Obama’s jobs plan because of “Buy American” measures that would restrict foreign companies from participating in infrastructure projects. [ID:nS1E78D12T]

Canadian business are hoping to benefit from the planned Keystone XL pipeline to the United States but it could be many years before it is built. [ID:nS1E78Q1M6]

The Bank of Canada has kept interest rates very low, and made clear it will not raise them any time soon. This has prompted some analysts to fret about a possible housing bubble.

Canada’s banking watchdog is increasing its scrutiny of the consumer loan sector to make sure banks do not lower their standards to boost lending volumes. [ID:nS1E78P109]

The budget watchdog says the finances of the federal government and the 10 provinces are unsustainable over the long term and they will need to either raise taxes or cut spending, in part because the population is aging. [ID:nS1E78S0GR]

What to watch for:

* How strong is the U.S. recovery? The United States traditionally takes almost three-quarters of Canadian exports. How badly would a new U.S. recession hit Canada?

* What effects would a European debt crisis have

* How much money would Ottawa be prepared to spend on a new stimulus program and how would that hinder efforts to eliminate the budget deficit by 2014-15?

* What, if anything, will the government or the Bank of Canada to do fend off a housing bubble? If housing prices collapse, what would that do to the economy?

* How long will the Canadian dollar stay below the U.S. dollar?

* When will the Bank of Canada start raising rates again?

* What effect could a new round of “Buy American” provisions have?

* When will the Keystone XL be built?

PROVINCIAL OUTLOOK

In Quebec, the main separatist party is in trouble and Ottawa has moved to ease a long-term irritant by signing a tax harmonization deal with the province’s pro-federalist Liberal government. [ID:nS1E78T1DS]

In Ontario, Canada’s most powerful province, the ruling Liberals are virtually tied with the opposition Conservatives and may win only a minority government in the Oct. 6 election. [ID:nS1E78Q0AZ] (Reporting by David Ljunggren; editing by Rob Wilson)

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