Economy relatively protected from inflation, finance minister says

By David Friend, The Canadian Press

TORONTO - Finance Minister Jim Flaherty says the Canadian economy is facing a variety of economic challenges, but has so far remained resilient.

"Certainly there has been a psychological effect of the recession in the U.S. housing sector, but keep in mind Canadian projections are on the positive side of the ledger," he told the Economic Club of Toronto in a speech Monday.

"Canadians and Canadian businesses have been resilient in the face of economic adversity," he said.

Flaherty acknowledged that Canadians face rising costs, including food prices and higher airline fees tied to fuel. But, he said Canada hasn't seen the same type of inflationary impact that other countries have experienced.

"Canada has been relatively protected from the inflationary trend elsewhere because of the relatively high Canadian dollar which affects, positively, the price of imports," he told reporters after his speech.

The soaring loonie has had made importing cheaper, but has also hurt Canadian manufacturers exporting goods, especially to the United States.

Ontario has suffered major setbacks from slowing exports, and appears positioned to shift to a "have-not" province as Newfoundland and Labrador prepares to stop receiving federal equalization payments.

The finance minister has been outspoken on the province's troubled economy and has rejected Ontario's claims that it's the equalization funding formula that's flawed and not the province's corporate tax policies.

"We want Ontario to remain a key engine of the Canadian economy. It's not in anyone's interest to see the country's most populous province slip into have-not status," Flaherty said.

While Flaherty maintained a relatively optimistic outlook, he did express some concern over trends in Canadian savings.

"We have been monitoring the mortgage market, as we do, and we've seen a trend toward longer amortizations and smaller down payments, and that is a matter of some concern," he said.

"We're continuing to monitor that, to watch that."

Flaherty also spoke positively about the latest jobs numbers, released last Friday, calling them "promising."

Canada's employment grew once again in April with the addition of 19,200 jobs, while the trade surplus jumped to $5.5 billion in March, the highest in almost a year.

"If you look at a wide variety of measures Canada is holding up remarkably well," said Doug Porter, deputy chief economist at BMO Capital Markets in an interview.

"Even though there was some grumbling about the make-up of Friday's employment number, the fact is we've had better than two per cent job growth in the last year and the unemployment rate is still close to its lowest levels in 30 years."

"That's a very different picture from what we've seen in the U.S."

Porter said that Canada's investments in the commodities sector has helped beef up the country's economy.

"It's far and away our ace in the hole," he said.

"It's helped support personal incomes, corporate earnings and government revenues. One way or another all those things are helping support domestic spending."