Time to again consider stimulus spending amid recession speculation: CIBC

With speculation rising of a second recession, the CIBC says Ottawa should consider a new round of stimulus spending to backstop the economy.

CIBC chief economist Avery Shenfeld says with interest rates at record low levels, borrowing is so cheap that the government may actually come out financially better off by going deeper into debt.

That’s because real 30-year rates are now below the economy’s long-term expected growth rate, so the cost of additional debt will steadily shrink as a portion of gross domestic product with time.

The CIBC doubts the Bank of Canada has much ammunition left to stimulate the economy, noting that with rates already low, trying to tempt Canadians to borrow even more to prop up the housing market may be counter-productive.

Shenfeld cautions he is not predicting a second recession and that his suggestions are a kind of contingency plan should global conditions continue to deteriorate.

So far, Canada has managed to skirt the troubles and Tuesday’s new GDP report for May is expected to show a relatively healthy gain of about 0.3 per cent from April.

But most analysts are becoming more concerned about the global recovery, and say Canada would not be able to stay above the fray if the European crisis worsens.