Canada's strong economic ties to the United States do not necessarily mean its economy will suffer from the fallout of a slowdown in the U.S. economy, Bank of Canada Deputy Governor Paul Jenkins said on Wednesday.

Jenkins said the cooling U.S. economy, led by a downturn in the housing market, is being offset by an upturn elsewhere in the world, and that will help Canada weather the storm.

"The rates of growth in the U.S. were unsustainable, so some slowing was expected ... but even with the slowing in the U.S. growth, what we are seeing is stronger growth in the rest of the world," Jenkins told reporters after a speech in Vancouver.

"For Canada, you've got to do that global add-up, you can't look at just what's happening in the United States," he said.

In fact, Jenkins said he "wouldn't be a bit surprised" if the International Monetary Fund upwardly revised its 2006 global economic growth forecast in an update due this weekend, based on strength in places like China, Japan and Europe.

In his speech to the Vancouver Board of Trade, Jenkins repeated the outlook laid out in the bank's September 6 interest rate announcement. He said the economy was now operating at about its production potential, which the bank pegs at 3 percent. He also maintained the bank's July forecasts on inflation and economic growth, and said upside and downside risks to the outlook were balanced despite the U.S. economy gearing down.

He said the August jobs report last week also confirmed that view.

When asked to comment on the weaker-than-expected labor productivity report on Wednesday, he warned against jumping to conclusions from one set of data.

"I have to confess that I haven't caught up with all the latest data ... certainly on productivity you get a lot of quarterly movements up and down and the broad trend we've been seeing in productivity are giving us comfort in terms of what we're assuming for the medium term," he said.

Canadian labor productivity fell for the first time in two years in the second quarter, down 0.4 percent from the first quarter. This is in contrast to the United States, which saw a 0.4 percent gain.

Year over year, Canadian productivity growth fell to 1.4 percent from the 2.1 percent registered in the first quarter.

Jenkins flagged productivity as a key factor to sustaining growth rates in Canada after his speech, which focused on the need for Canada to knock down inter-provincial barriers to trade and labor mobility.

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