UPDATE 1-Canada sees risks to growth from global economic woes

Fri Aug 31, 2012 10:28am EDT

* Canada says Europe is key risk, hurting global economy

* Flaherty: GDP data shows Canadian economy growing

TORONTO Aug 31 (Reuters) - The global economic situation is fragile and problems in Europe and other parts of the world could hit Canadian growth, Finance Minister Jim Flaherty said on Friday.

Flaherty said the key risk remained the debt crisis in Europe and also cited the sluggish U.S. recovery.

"Further slowing of the global economic situation can be expected to have an impact on Canada," he told reporters, saying the uncertain global conditions meant there were downside risks to economic forecasts the government made in its March budget.

Flaherty, a long-time critic of what he sees as Europe's reluctance to deal with its problems, said he talked to his European counterparts this week and they had expressed optimism about dealing with the crisis later this year.

"I'll believe it when I see it, because this has been going on for a long time," he added.

"(The European crisis) is affecting the level of economic growth in the emerging economies including China ... this is a drag on the world economy," he said.

Flaherty said second-quarter gross domestic product data released earlier in the day showed Canada was continuing to show growth. The Canadian economy grew at an annualized 1.8 percent in the quarter, slightly exceeding market expectations.