OTTAWA - Finance Minister Jim Flaherty says problems that prompted the recent turmoil in global financial markets could have a "modest effect'' on Canada's economy, even though the situation in Canada appears to be controlled.
Flaherty says stability seems to have returned to the market this week after a deep losses that hammered the Toronto stock market and others last week. While the country's economic fundamentals are strong, Flaherty says it will take time for the credit crunch to resolve itself.
Canada's central bank took steps last week to defuse the growing crisis by injecting cash into the system and expanding the nature of the collateral it would accept for borrowing.
Flaherty says there's evidence these measures have had a positive effect.
At one point last week, the Toronto Stock Exchange fell by as much as 585 points, or about 4.5 per cent _ an intra-day drop not seen since the high-tech stock bubble burst seven years ago.
The downturn in the markets was part of a global trend playing out in the wake of credit problems, prompted mainly by a crisis in subprime mortgage lending in the United States.
With the U.S. housing market sinking deeper into gloom and credit drying up, many economists are predicting that these factors and other problems could lead to a recession.
As for the effect of these issues on Canada, Flaherty acknowledged that there is risk to Canada's economy.
"As we go through a period of repricing risk, (it) could have some very modest effect in Canada,'' he said following a speech at the annual conference of the Association of Municipalities of Ontario.
"But overall, and I've said this in my statement last week, we have a very strong economy in Canada.''
