Canada sees modest growth but worried about Europe

WASHINGTON: Canadian officials still predicted on Friday their country would be able to avoid slipping back into recession but said they were anxious about the effect the European debt crisis could have on the economy.

"We anticipate continued modest growth in Canada. That's what the economists and what the IMF and the OECD anticipate. That hasn't changed," Finance Minister Jim Flaherty told a news conference at a meeting of the International Monetary Fund.

"We're worried of course about external shocks from outside our country, particularly the situation in the European Union with sovereign debt and bank exposure to sovereign debt."

Flaherty reiterated that his government would continue its deficit reduction plan but would pragmatically adjust if the global situation deteriorated.

For the first time since the economic woes of 2007-09, Prime Minister Stephen Harper warned in a speech in Ottawa on Thursday that in the absence of strong measures the world would return to recession.

Bank of Canada Governor Mark Carney said the talks in Washington with officials from the International Monetary Fund and the Group of 20 leading economies had reinforced his view that the risks to Canada were largely external and "skewed to the downside."

But asked if the Canadian dollar constituted a safe haven, the central banker said: "We have sound fundamentals. We have strength in our financial system. We have a credible fiscal plan ... and that brings attraction to foreign capital."

"It is incumbent upon us, our businesses, to use that capital as effectively as possible, because in the context of a global economy where economic power is shifting, we're going to need to reorient our economy," he added.

Carney said the situation in Europe was "fragile" but "fixable".

Copyright Reuters, 2011