Flaherty says economy resilient, no budget gap

Wed Apr 23, 2008 7:14pm EDT
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By Steven C. Johnson and Lucia Mutikani

NEW YORK (Reuters) - Canada's economy can withstand a deeper U.S. slowdown with only a minor impact on growth and can maintain a budget surplus in the current fiscal year, Finance Minister Jim Flaherty said on Wednesday.

In an interview with Reuters, Flaherty said he did not anticipate additional tax cuts during this period, having already delivered a fiscal stimulus package that he said amounts to 1.4 percent of gross domestic product.

He said previous tax cuts, lower interest rates, and relatively low inflation have helped Canada's economy weather the downturn in the neighboring United States, its biggest trading partner.

"I am still satisfied that we will have positive economic growth in Canada this year. Our economy is resilient," he said, adding the economy may grow at a 1.6 percent rate this year instead of 1.7 percent as previously projected.

"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," Flaherty said.

The minority Conservative government has cut the goods and services tax twice since coming to office in 2006, but Flaherty said budget discipline should prevent additional cuts.

"I wouldn't anticipate we would have the resources to do further major tax cuts this fiscal year," he told Reuters in an interview. "I would not want to raise any expectations on that."

Credit rating agency DBRS said this week Canada may face a small budget deficit this year in the order of 0.1 to 0.2 percent of gross domestic product for the first time since 1996-97.   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>