Fed cuts growth forecast due to global woes

Fri Aug 22, 2008 2:10pm EDT
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By Louise Egan and John McCrank

OTTAWA/TORONTO (Reuters) - Canada's government has slashed its forecast for economic growth in 2008 to 1.1 percent from 1.7 percent, citing global economic woes it said were beyond its control.

"We are feeling the impacts of global economic factors beyond the control of any one individual or government," Finance Minister Jim Flaherty said in his department's fiscal update on Friday, which also noted that Ottawa returned to a budget surplus in June.

The Department of Finance's downgrade of its 2008 economic growth forecast was a widely anticipated move that brought its view more in line with private sector economists and the Bank of Canada's 1 percent growth estimate.

However, it maintained the estimate of nominal gross domestic product growth at 3.5 percent, citing higher commodity prices.

Speaking to reporters in Toronto, Flaherty refused to comment on whether the economy might shrink again in the second quarter after a surprise 0.3 percent decline in the first quarter.

"We are continuing to watch things closely, of course, because there is continuing weakness in the U.S. economy, which has a slow-growth effect on the Canadian economy, particularly (on) manufacturers, exporters and the auto sector."

The popular definition of a recession is two back-to-back quarters of economic contraction. Gross domestic product figures for June are due on August 29.

"We were slightly negative in the first quarter, but only slightly negative, so we'll see the numbers when they come out at the end of next week," Flaherty said.   Continued...

<p>Bank of Canada Governor Mark Carney leaves his office for a news conference upon the release of the Monetary Policy Report in Ottawa July 17, 2008. REUTERS/Chris Wattie</p>