April 23, 2008 / 2:58 PM / 9 years ago

Canada can survive slower U.S. growth: Flaherty

<p>Finance Minister Jim Flaherty speaks during Question Period in the House of Commons on Parliament Hill in Ottawa April 17, 2008. REUTERS/Chris Wattie</p>

NEW YORK (Reuters) - Canadian Finance Minister Jim Flaherty on Wednesday said that the Canadian economy is in good shape and can withstand a deeper U.S. slowdown with only a minor impact on growth.

In an interview with Reuters TV, he said the economy may grow at a 1.6 percent rate this year instead of 1.7 percent as previously projected.

But he added that “we are in the right area for our growth, we have low interest rates and relatively low inflation. The fundamentals are fine, they have not changed.”

After cutting benchmark interest rates by half a percentage point this week, the Bank of Canada said its outlook for the U.S. economy had deteriorated since January and warned of a “significant drag” on Canadian growth this year.

The central bank has slashed interest rates by 150 basis points since December, pushing borrowing costs to 3 percent.

Flaherty said Canada “will be affected” by slower U.S. growth, but added that “we have a different situation.”

“Our banks are well capitalized, they have good balance sheets, we have not had a housing bubble and our homeowners have got good balance sheets.”

Flaherty said high commodity prices and recent tax cuts should help Canada “weather the storm” in the United States, its biggest trading partner.

In a separate interview on Canada’s Business News Network television, though, Flaherty said the country would face a big setback if investors reject a proposed restructuring offer for C$32 ($31.7 billion) worth of asset-backed commercial paper that’s been frozen since last August.

“That would be a significant setback, a significant disappointment after all the work that’s been done to get that resolved within the private sector,” he said..

The ABCP issued by nonbank players seized up last summer when investors lost confidence due to concerns about links to U.S. subprime mortgages.

A special committee has drafted a proposal to convert the commercial paper into longer term notes, which can only succeed if a majority of investors approve it in a vote on Friday, but the process has become mired in uncertainty tied to legal issues.

FX INTERVENTION NOT DISCUSSED AT G7

Speaking to Bloomberg TV on Wednesday, Flaherty said officials from the Group of Seven rich countries did not discuss coordinated intervention in currency markets when they met earlier this month.

The G7, which comprises the United States, Canada, Britain, Germany, France, Italy and Japan, voiced concern about sharp fluctuations in currency markets, though Flaherty said his had had little impact on exchange rates.

The U.S. dollar, which began falling sharply last summer, has continued its slide, hitting a record low against the euro on Tuesday, and has remained near parity with the Canadian dollar.

(Additional reporting by Louise Egan in Toronto)

Editing by Theodore d'Afflisio

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