Carney, Flaherty to offer clues on Canada economy

Canadian policymakers could provide important clues about spending plans and interest rates on Friday when a rare midsummer parliamentary committee meeting examines market instability and foreign debt crises.

Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney will testify to the House of Commons finance committee, which is looking into the impact on Canada of foreign economic turmoil.

Parliament only returns from its summer break on Sept 19, but opposition legislators -- particularly the left-leaning New Democrats -- said they could not wait till then.

Flaherty said in a radio interview over the weekend that he would consider more stimulus measures if the economy slips into recession, a change from a previous promise to stick to plans to eliminate its budget deficit by 2014-15.

"I welcomed any kind of flexibility on behalf of the government. We had not heard that before," said Peggy Nash, finance spokeswoman for the New Democrats, urging Flaherty to explore the idea of fresh infrastructure investments.

Flaherty's office was not immediately available for comment.

Doug Porter, deputy chief economist at BMO Capital Markets, said Flaherty and Carney would most likely use the appearance "to soothe concerns on the outlook and play up Canada's relative strengths."

But the session also gives Carney, who had not been publicly scheduled to speak until late October, a chance to update central bank thinking on interest rates.

The bank signaled on July 19 it was closer to raising rates, although only if the economy continued to advance.

Since then a ream of gloomy data has shown that the economy most likely stalled in the second quarter, and markets no longer expect a rate hike in the foreseeable future.

Mark Chandler, head of Canadian fixed income strategy at RBC Capital Markets, said legislators could press Carney on whether there were any circumstances under which the central bank might cut rates.

"I assume he'd have to say yes, there could be scenarios (of rate cuts)," he told Reuters.

Nash also said she wanted to press Flaherty and Carney on the latest economic data.

Late last month the Bank of Canada forecast annualized second quarter growth of 1.5 percent, while new data indicates there may be no growth at all.

Porter said it looked as though the central bank and others had underestimated the impact of wildfires on oil production in the major energy-producing province of Alberta.

"I think it's also fair to say that, yes, the bank (again along with others) was a bit optimistic on underlying growth in the North American economy -- even as recently as a month ago," he said in an e-mail to Reuters.

Flaherty is scheduled to appear from 9 a.m. EDT to 10 a.m. on Friday while Carney and Senior Deputy Governor Tiff Macklem will appear from 10 a.m. to 11 a.m.