TORONTO, Jan. 19 (UPI) -- A Toronto think-tank warned Monday Canada is heading on a dangerous path toward deflation in its battle to craft a budget in the midst of a global recession.
The Center for Spatial Economics issued the warning a day before The Bank of Canada was expected to announce a half-percentage point cut in the 1.5 percent rate, the Canwest News Service reported.
The report predicted a 0.9 percent contraction in the economy this year with a rebound in the second half.
"Given the recent plunge in consumer confidence there is a significant risk of a large contraction in spending," the center said. "There is, however, the very real risk of a deflationary debt spiral that could cause a prolonged slump."
The group is helping the minority Conservative government craft a budget slated for release in Ottawa Jan. 27.
Deflation hasn't largely been experienced in North America since last century's Great Depression, and results in consumers putting off purchases, which in turn forces businesses to cut production, prices and employment even more, the report said.
