Global problems could throw Canada off course: Flaherty

Fragile economy might slow job creation
||Last Updated: 08/21/2012

OTTAWA (Reuters) — A stubbornly fragile global economy could throw Canada's steadfast growth and job creation off track, Finance Minister Jim Flaherty said on Wednesday, although he highlighted a slowing housing market and increased investment on machinery as positive developments.

Speaking to reporters hours before a visit to Ottawa by German Chancellor Angela Merkel, Flaherty said recent steps by the European Central Bank to ease the debt crisis there were useful, but much more had to be done.

Europe has the resources to solve its own problems and should not need Canadian aid, he said.

Export-dependent Canada recovered from the global financial crisis more quickly than most of its peers, but growth and job creation have been mediocre this year. The outlook is dim as disappointing data rolls in for Europe, the United States and China.

"Continuing economic headwinds from outside the country could easily throw us off course," Flaherty said, even as he boasted of the best post-crisis job-creation record in the Group of Seven.

Noting that Canada was still on track to balance its budget on schedule, Flaherty said it was possible to have both balanced budgets and a growing economy.

"It's not that you can't have fiscal responsibility in a fairly large government and (have to) sacrifice economic growth," he said. "You can try to strike that balance where you have modest growth, which is what we have in Canada today, and yet maintain your fiscal track — that is, get back to balanced budgets in the medium term. It can be done."

Merkel was to meet with Prime Minister Stephen Harper Wednesday evening and the two are to hold a news conference on Thursday. They are expected to discuss the debt crisis as well as Canada-EU (European Union) negotiations for a free trade agreement.

Flaherty said the U.S. budget deficit is also a threat to Canada, which still sends most of its exports to the neighbouring country. "It's not only important for us, but for the rest of the world," he said.

He said the domestic housing market is showing signs of moderation, although it was too early to say whether tighter mortgage rules that took effect in July were already having an impact. The booming real estate market has been the biggest domestic headache for policymakers since the 2008-09 recession.

The strong dollar is less of a concern. Businesses have adapted and the currency's strength is boosting investment in machinery, Flaherty suggested.

"The positive side of the coin is the purchase of machinery and equipment by Canadian businesses, which has gone up, and that's very important in terms of increasing Canadian productivity and growing our economy."

The Canadian dollar hit its highest level in more than three months on Wednesday, trading at $0.9988 to the U.S. dollar or $1.0113.

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