March 16, 2008 / 1:18 AM / 10 years ago

Strong economy shields Canada as U.S. sags: Carney

TORONTO (Reuters) - Canada’s strong economy will help shield it from a U.S. slowdown that looks like being more prolonged than originally expected, the head of the Bank of Canada said in an interview broadcast on Saturday.

Speaking on CBC Television, Bank of Canada Governor Mark Carney declined to say if he thought the United States was already in a recession. But he predicted recovery would be slow, and said that expectation had helped prompt a half-point Canadian interest rate cut earlier this month.

“The important thing for us is not whether at this precise moment in time growth is slightly positive, zero or slightly negative in the United States,” he said in an interview conducted earlier this week.

He added: “We do not see a sharp snapback in U.S. growth in 2009, and that necessitates a reaction and is put in our list of considerations to decide monetary policy.”

The United States is Canada’s biggest trading partner by far, so economic problems south of the border almost always have an impact on Canadian firms.

But Carney said Canadian fundamentals remained strong, with a strong labor market, healthy corporate and household balance sheets and well-capitalized banks.

He said problems in the U.S. financial sector had reduced the world’s appetite for risk, and would influence the cost of borrowing in Canada. But Canada did not share the social and economic factors that had made the U.S. subprime mortgage crisis so painful.

“We have a number of fundamentals strengths in our economy which are going to lessen the spillover from the United States,” he said.

Carney, who took over at the Bank of Canada six weeks ago, is charged with trying to keep inflation at the central bank’s 2 percent target. He questioned whether that was low enough, but said the bank should be wary of “meddling with success.”

“The clear objective for monetary policy is 2 percent consumer price inflation and that is how success or failure is measured,” he said.

“All our analysis and our economic experience has indicated that keeping inflation low, stable and predictable has been the best contribution of monetary policy to the economic and financial welfare of Canadians... We change that at our peril.”

Editing by Alan Elsner

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