Canada Q2 growth tops G7 but government sees dangers

Fri Aug 31, 2012 5:02pm EDT
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By Randall Palmer

OTTAWA (Reuters) - Finance Minister Jim Flaherty warned on Friday that Canadian economic growth may be set to weaken and undermine his budget projections even though second-quarter GDP data exceeded market expectations and was the strongest in the G7.

Solid business investment in plant and equipment, along with inventory build-ups, helped Canada register annualized real growth of 1.8 percent in gross domestic product in the second quarter, data on Friday showed. That matched a recent Bank of Canada forecast and beat a market forecast of 1.6 percent.

Canada now has had four straight quarters of expansion, Flaherty said. He added that though the growth rate was modest, it was better than any of the others in the G7, the Group of Seven leading industrialized nations.

But he said the global economy was fragile, and while the federal budget deficit had been halved in the first three months of the fiscal year, April-June, to C$1.98 billion ($2.00 billion), there was "downward risk to the fiscal track presented in budget 2012 (in March)".

The government did include an adjustment for risk in preparing the budget, he said. "However, further slowing of the global economic situation can be expected to have an impact on Canada," he added.

Flaherty, a long-time critic of what he sees as Europe's reluctance to deal with its problems, said he had talked to his European counterparts this week and they had expressed optimism about dealing with the euro-zone debt crisis later this year.

"I'll believe it when I see it, because this has been going on for a long time," he added.

"(The European crisis) is affecting the level of economic growth in the emerging economies including China ... this is a drag on the world economy," he said.   Continued...

The Canadian flag is seen on top of a flagpole in the midst of high-rise buildings in the financial district of Toronto April 3, 2009. REUTERS/Mark Blinch