September 11, 2012 / 4:38 PM / 6 years ago

Canada's Flaherty cites U.S. fiscal woes as potential threat

Canada's Finance Minister Jim Flaherty leaves following a news conference in Ottawa August 15, 2012. REUTERS/Chris Wattie

OTTAWA (Reuters) - Canadian Finance Minister Jim Flaherty said on Tuesday there is growing concern about the ability of the United States to tighten its budget as needed while continuing to grow, and said this and the European debt crisis could seriously harm Canada.

“While we are not currently facing the depths of the downturn of a few years ago, the global economy remains stubbornly fragile. Any potential offshore setbacks could generate serious adverse impacts on Canada,” Flaherty said in a speech in St. John’s, Newfoundland.

“For example, growth in a number of emerging-market economies is slowing, and concerns are growing about the capacity of the U.S. to balance the necessary fiscal consolidation while sustaining economic growth,” he said, adding that the most immediate threat is the banking crisis in Europe.

Flaherty, who frequently speaks with his counterparts in the Group of 20 emerging and advanced economies, warned that policymakers in many countries feel limited in their ability to respond to the noxious effects of the euro zone crisis on their economies.

“High debt levels in some countries mean new fiscal stimulus could be counter-productive,” he said.

“In addition, monetary policy rates are near zero in many countries, raising doubts about the ability to further lower interest rates and stimulate lending, including unconventional measures.”

Canada’s economy grew at a sub-par 1.8 percent, annualized, in the second quarter. Flaherty said to keep it growing, the Conservative government will focus on investing in infrastructure, streamlining the regulatory review process for natural resource projects, completing a free trade agreement with the European Union, and pursuing similar deals with other countries.

Reporting by Louise Egan; Editing by Peter Galloway

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