Flaherty says Canada to steer clear of recession

Fri May 30, 2008 3:14pm EDT
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By Frank Pingue

MONTREAL (Reuters) - Finance Minister Jim Flaherty said on Friday that Canada is not headed for a recession even though the latest domestic data shows the economy shrank unexpectedly in the first quarter.

"If some people are saying that (Canada is headed for a recession) I disagree with them," Flaherty told reporters after a two-day meeting with provincial and territorial finance ministers.

"I think quite frankly that the economic fundamentals, as I have said, are quite strong."

Flaherty's comments were made after data released early on Friday showed the economy recorded its first quarterly contraction in five years, which supported calls for another Bank of Canada interest rate cut in June.

The economy shrank by an annualized 0.3 percent last quarter, which surprised the market and shook the Canadian dollar slightly as analysts had, on average, expected annualized growth of 0.3 percent.

But Flaherty was quick to point out that the data was weighed down by hardships in the auto sector, which has felt the brunt of a weakening U.S. economy and a strong Canadian dollar that has topped its U.S. counterpart.

"In fact, when you take the woes in the auto sector out of the equation, then there was economic growth in the first quarter of this year in Canada," he said.

During the finance ministers meeting, Flaherty said he discussed several issues including labor shortages, inter-provincial trade barriers and his ongoing quest for a single, national securities regulator.   Continued...

<p>Canada's Finance Minister Jim Flaherty speaks with the media following his meeting with provincial and territorial ministers of finance in Montreal, May 30, 2008. REUTERS/Christinne Muschi</p>