Flaherty Says Canadian Economy Operating Below Potential

Aug. 15 (Bloomberg) -- Finance Minister Jim Flaherty said the level of the Canadian economy is below its potential as the country faces challenges such as Europe’s debt crisis, a weak recovery in the U.S. and slowing growth in emerging markets.

Flaherty, speaking to reporters in Ottawa, said the global economy remains “stubbornly fragile” and finding solutions to sustain the global recovery has become a challenge.

“As an open economy, Canada is not immune from these effects,” Flaherty told reporters in Ottawa. “Global events have had an impact on our level of economic activity which is lower than our potential.”

The comments come as German Chancellor Angela Merkel is due to arrive today in Canada for a two-day visit that will include meetings with Canadian Prime Minister Stephen Harper in Ottawa.

Flaherty, the longest serving finance minister among the Group of Seven countries, said Europe is handicapped by a lack of institutions such a central ministry of finance and needs to do more to recapitalize its banks and reduce deficits. He also said there are concerns around U.S. fiscal and tax policy.

Slowing global growth has boosted demand for Canadian assets, making the country’s currency the second-best performer among 17 major currencies tracked by Bloomberg News over the past six months. The currency has gained 1 percent against the U.S. dollar over that time, and 7.5 percent against the euro.

Flaherty today said the stronger Canadian dollar partly reflects the country’s economic fundamentals.

To contact the reporters on this story: Andrew Mayeda in Ottawa at amayeda@bloomberg.net; Theophilos Argitis in Ottawa at targitis@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net