Finance Minister Jim Flaherty said yesterday the Canadian economy is showing strong signs of recovery but not enough for the government to pull the plug on its multi-billion-dollar stimulus package.

"We're not comfortable yet that we're at a place where we can stop the stimulus measures," Flaherty told reporters in Quebec City.

Still, he said the recovery will improve next year as the stimulus money snowballs.

"There will be a lot of cash flow in the economy next year," he said.

Flaherty said federal investments are gathering speed as construction gets underway after environmental assessments and engineering work are completed.

But the minister said one cause for concern over the pace of recovery is that Canadians might be carrying too much debt as they rush to take advantage of historically low interest rates.

The Bank of Canada stressed in a report Thursday that households are becoming "increasingly vulnerable" to any further economic shocks. The central bank noted Canada's debt-to-income ratio had climbed to a new high of 142 per cent as of the end of June.

Flaherty said the government expected to see some increases in household debt, but warned it is keeping a close eye on the issue and will act swiftly if necessary.

"We're not in a position now where we feel we need to act in that way," he said. "But we are watching."

Flaherty urged Canadians to be mindful of what mortgage payments they can afford assuming interest rates "will eventually increase."

The minister said he is happy to see business confidence improve and more investments being made by the private sector. He also hailed consumer confidence and the stabilization of the job market. But he cautioned these are just "signs" that a recovery is starting to take place.

"Are we out of the woods yet? I think the answer is no and I think it's no globally as well," Flaherty said.

"There are still challenges globally. There are still challenges within Canada, which is all the more reason we need to stay the course and continue to implement our [stimulus] plan," he added.

Flaherty reiterated that Canada is relatively better off than most other countries in the world because it paid off about $40 billion worth of debt in recent years.

"We were in a better situation going into the recession and we have a much better fiscal situation and we have a sound financial system," he said.

The minister was in Quebec City yesterday to launch pre-budget consultations as part of the second phase of the government action plan on the economy.