The Canadian fiscal stimulus package has successfully bolstered consumer confidence and driven a sharp resurgence in the housing market, said Christy Chen, economist from BMO Capital Market during a special interview with Xinhua News Agency on Wednesday.

The stimulus package is setting stage for a mild recovery in Canada, Chen said.

After contracting for three consecutive quarters, Canadian real GDP rose 0.1 percent in the third quarter. This positive growth signals a "technical" end of recession and indicates that a mild recovery is unfolding in Canada, with help from federal government's fiscal stimulus package released in early 2009, Chen said.

In January 2009, when financial crisis has spilled into a global meltdown and has caused damage on the real economy in Canada, Ottawa announced a spending plan that will result in a cumulative deficit of 85 billion Canadian dollars (US$81 billion) over five years, with most of the money earmarked on housing construction and infrastructure projects.

More specifically, the government provides first-time home buyers a 5,000 Canadian dollars (US$4,762) non-refundable income tax credit, allows individuals to withdraw up to 25,000 Canadian dollars from Registered Retirement Savings Plans (RRSPs) to purchase or build a home without having to pay tax on the withdrawal, implements a 15-percent temporary Home Renovation Tax Credit on the portion of eligible expenditures over 1,000 Canadian dollars but not more than 10,000 Canadian dollars.

"These policies," Chen said, "combined with low interest rates, have set the stage for a strong rebound in housing market since the sector reached a bottom in early 2009."

"For example," she said, "helped by the tax credit for first-time home buyers, average home price advanced 20 percent over last three quarters and existing home sales surged 79 percent since the number hit a cyclical low in January."

Home renovation activities were also boosted by tax credit, as personal consumption expenditure on furniture, household equipment and maintenance posted annualized growth of 3.25 percent in the third quarter. Resurgence in housing market assisted to bolster domestic demand, which contributed 1.8 percent to real GDP growth in the third quarter and largely offset the decline in net exports, Chen said.

Other stimulus measures also paid off, with government's investment in fixed capital increasing 5.7 percent over the third quarter, the fastest quarterly growth since the first quarter of 2001.

Although Ottawa's stimulus package is more moderate than the US package, which is expected to amount to US$825 billion over 2009 and 2010, the third quarter's positive real GDP growth, especially the healthy domestic demand, highlights that these stimulus measures have successfully limited the impacts of an economic downturn and helped to support consumer confidence, Chen said.

With a mild recovery unfolding in late 2009 and the Canadian real GDP expected to grow over 3.0 percent in the fourth quarter, the federal government may start to consider unwinding the stimulus program, Chen said.

The home renovation tax credit is scheduled to expire on February 1,2010 and the tax credit for first-time home buyers could stop in 2010 as well, as the housing sector has bottomed out and economists are concerned about an overheated home market.

However, as business investments are still facing downward pressure from the tepid US demand and job losses are predicted to continue into 2010, other stimulus measures, including funds for public infrastructure projects, support for laid off workers and corporate income tax relief, could remain for a longer term.

(Xinhua News Agency December 3, 2009)