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MARKHAM, Ont. (CP) - The strong Canadian economy is helping to offset the financial storm that has swept through global credit markets, Finance Minister Jim Flaherty said Sunday.

Flaherty told the Canadian Chamber of Commerce that solid jobs growth in the economy, government budget surpluses and falling debt burden as well as the country’s role as an emerging energy superpower have helped ease the economic stresses caused by the credit crunch.

“”The Canadian economy is the strongest it has been in a generation,”" Flaherty told the annual meeting of the Chamber, the country’s biggest business lobby group with 170,000 members. “”That fact, along with important initiatives taken by the Bank of Canada and the private sector have supported the functioning of the markets.”

While part of Canada’s asset-backed commercial paper market - a system of short-term corporate lending - has been frozen, the Canadian financial system has been generally functioning normally. A plan has been proposed to freeze and eventually restructure the $35 billion market for asset-backed commercial paper that is not sponsored by the big banks.

The Bank of Canada and other central banks around the world have pumped billions of dollars into the financial system in recent weeks to help ease the credit turmoil. But troubles persist. In recent days, hundreds of customers lined up outside branches of a British mortgage bank, Northern Rock, to withdraw their savings after the bank asked for an emergency Bank of England loan.

The British bank made the request because it relies heavily on wholesale money markets for cash, and had been unable to borrow the amounts it needed from other banks since money markets choked up last month. That was caused in part by U.S. banks making mortgage loans to Americans with poor credit histories. The fallout from that lending has led to rising foreclosures in the U.S. housing market, the near collapse of some U.S. mortgage lenders and the seizing up of financial markets linked to risky mortgage lending.

The main problem appears to be that hedge funds, investors and other financial players can’t properly value the complex, poor-quality financial products they hold that are linked to the U.S. sub-prime mortgage market.

Earlier this week, some of the chief executives of Canada’s big banks said they expect the global credit turmoil to last until next spring at least. Flaherty agreed.

“”Clearly, the storm has not yet subsided, but I can assure you our government and the Bank of Canada will continue to monitor the situation closely,”" he told the Chamber, which is meeting in this community just north of Toronto.

Flaherty met with the CEOs of the big Canadian banks a few days ago and later praised the plan proposed by the Caisse de depot for a 60-day freeze that will help financial companies properly value the asset-backed securities they hold. As well, Bank of Canada Governor David Dodge said the private sector needs to take the initiative to work out the problems in the credit squeeze and not expect central banks to bail them out.

“”The guiding principle must be caveat emptor (buyer beware),”" Dodge told a business group in London England.

In his speech Sunday, Flaherty also told the Chamber that Canada faces some economic challenges, which the Conservative government is trying to address with its tax and spending policies:

-The rising Canadian dollar and its impact on the manufacturing sector, especially in Ontario and Quebec.

-Increased competition from emerging economic giants like China, India and Brazil. China, the world’s fastest growing economy, has just surpassed Canada as the leading exporter of goods to the United States.

-A shortage of skilled workers and an aging population as well as outdated and inadequate infrastructure.

“”The world economy is changing and Canada needs to adapt to it,”" Flaherty said. “”We need to look further ahead to sharpen our competitive edge. Our objectives are clear: more and better jobs, a higher standard of living, and greater opportunity for Canadians to learn, earn, and invest to create the future they want for themselves and their families.”"

Source Flaherty tells Chamber strong Canadian economy helps offset credit crunch article
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