$10B to $13B in stimulus needed: Conference Board

The Conference Board of Canada called on the federal government to come up with a stimulus package of $10 billion to $13 billion when it unveils its budget on Jan. 27.

The Ottawa-based research group said the government should provide temporary economic stimulus of up to one per cent of the country's gross domestic product.

"Monetary policy has been the primary tool used to inject stimulus into the economy, but it may be reaching the limit of its effectiveness," aid Glen Hodgson, the Conference Board's senior vice-president and chief economist

"Governments can’t afford to wait 18 months for the full benefit of lower interest rates to kick in. Complementary fiscal action must now ride to the rescue. Fortunately, Canada is in a much stronger fiscal position than most other nations and can easily absorb fiscal deficits over the near term."

The Bank of Canada has slashed interest rates by three-quarters of a percentage point down to 1.5 per cent, a 50-year low.

Hodgson said said the country would be left with a total deficit in fiscal year 2009-10 of $20 billion or more, "but that is a price worth paying for a faster recovery and a return of consumer and investor confidence."

Finance Minister Jim Flaherty has said the country should run a surplus this year, but hasn't ruled out a temporary deficit for next year. He has rejected going back to year-over-year "structural" deficits.

The Conference Board said the federal government should immediately provide direct support to the unemployed, increase and speed up infrastructure investment, fund programs for workers affected by the slowdown, provide support for low-income earners, and make sure businesses have access to credit.

Economists at Bank of Montreal have already called for $16 billion in economic stimulus to be included in next month's budget.