Canada can survive slower U.S. growth: Flaherty

Wed Apr 23, 2008 11:37am EDT
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By Steven C. Johnson and Lucia Mutikani

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.   Continued...

<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>