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Canada: Is the Recovery Sustainable?

As world leaders gathered in New York for the UN general assembly and in Pittsburgh for the G20 Summit, it’s without a doubt that the state of the global economy will be the topic of the week.

Ahead of those meetings, Canada’s Prime Minister Stephen Harper spoke with Maria Bartiromo at the New York Stock Exchange, in a “First on CNBC” interview. Harper’s biggest concern was the sustainability of this recovery.

Maria with Canada’s Prime Minister Stephen Harper
CNBC.com
Maria with Canada’s Prime Minister Stephen Harper

Among the developed G20 nations, France and Germany emerged from recession in the second quarter.

Canada is also seeing some growth but Harper is concerned about the sustainability of this recovery saying he “wouldn’t underestimate globally, how much this growth is due to stimulus measures – monetary and fiscal measures.”

One sign he’s watching for is a “real rebound in private investment.”

Planning an exit

Even though the recovery has yet to take shape, exit strategies are already on the minds of many finance ministers, central bankers and economists. Of the G20 economies, Harper said, “We are encouraging leaders to think about exit strategies but let’s not get too far ahead of ourselves.” He would like to see stimulus measures completely rolled out, a “less fragile” recovery and private sector driven growth.

In Harper’s view, countries that are “Highly indebted or engaged in expansionary monetary policies” have the biggest headache in terms of an exit strategy. He said they “are going to have to figure out ways to ease out of that and avoid inflation, and some of the problems with higher interest rates and debt spirals.”

On The Home Front

On the home front, Canada pumped $32 billion into an economic stimulus package earlier this year. The economy is seeing signs of stability, contracting at an annual pace of 3.4% in the second quarter versus the 6.1% decline in the first three months of the year. And according to Harper, Canada’s exit from stimulus “will be relatively smooth”.

Once that growth is sustainable, Harper told Bartiromo there are three crucial things for global leaders to work towards. Firstly, continuing to implement stimulus measures. Secondly, taking steps to prevent protectionism. And lastly, working towards a better regulatory environment.

Preventing Protectionism

Heading to Pittsburgh, Harper wants to drive home the message about open markets and the recovery. He has sensed a “drift towards protectionism in the world” and hopes that global leaders can look outward, even in times of economic hardships. He said, “open markets are good for our economy and the global economy in the long term”. There are lessons to be learnt from the Great Depression in the 1930s, where Harper said, “a big recession became a big depression because markets closed.”

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Questions? Comments? Write toinvestoragenda@cnbc.com

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