Bigger hit on Canada growth from U.S. possible: Dodge

Mon Jan 7, 2008 12:03pm EST
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BASEL, Switzerland (Reuters) - Bank of Canada Governor David Dodge said on Monday a slowdown of the U.S. economy in the first half of 2008 could have a worse impact on Canada's performance than was expected just a few months ago.

"The downside risks to Canada from slower U.S. growth in the first half of 2008 are probably greater than we estimated in October," he told reporters on the sidelines of a meeting of the Bank for International Settlements in Basel, Switzerland.

The United States is Canada's largest trading partner, and worries over the state of the world' biggest economy were reinforced last week by weaker-than-expected jobs data.

The U.S. economy added just 18,000 jobs in December and the unemployment rate rose to 5.0 percent, its highest level in more than two years, up from 4.7 percent in November.

A further headwind for the Canadian economy has been the strength of its dollar against the U.S.'s, after the Canadian dollar hit a 130-year high of U.S. $1.1042 on November 7, equivalent to one U.S. dollar being worth 0.9056 Canadian dollars.

The Canadian dollar has since eased to U.S. $0.9941, but Dodge, in separate remarks to news agency Market News, suggested it might have further to fall.

"Our analysis would indicate, based on historic norms...(that) a Canadian dollar in U.S. dollar terms somewhere in the low to mid 90s is totally justified in terms of the historical relationships between terms of trade, domestic economic performance and so on," Dodge said.

Nonetheless, he cautioned against drawing any immediate conclusions, saying that "the appropriate level for the (Canadian) dollar is always exactly where it is."

Earlier he had told reporters that Canadian currency's strength was "clearly having a slightly greater downside impact on our domestic inflation than we expected last October."   Continued...

<p>A Royal Canadian Mint employee holds freshly pressed loonies, in Winnipeg November 14, 2007. Bank of Canada Governor David Dodge said on Monday a Canadian dollar range against the U.S. dollar in the low to mid nineties was justified, news agency Market News reported. REUTERS/Fred Greenslade</p>