Fitch Ratings has affirmed Canada’s long-term foreign and local currency issuer default ratings at ‘AAA’ with stable outlooks.

The rating agency says that Canada’s ‘AAA’ status is underpinned by its high standards of living, the strength of its institutional framework, its stable political system, and its prudent macroeconomic management.

“Canada has enjoyed the highest average growth — 3.3% — among the G7 economies during the last decade, leaving it better-placed to contend with the current global downturn than most of the other advanced economies,” says Brian Coulton, managing director in Fitch’s Sovereign group.

It notes that Canada’s advantageous starting point, together with the opportune easing in its fiscal and monetary policies, suggest that the Canadian economy is also likely to recover more quickly than the other G7 nations. However, given the high degree of economic integration between the United States and Canada, a longer and more protracted slowdown in the former could imperil this relatively sanguine outlook for its neighbour, Fitch cautiones.

Canada’s public finances enter the downturn on a favourable footing after having been carefully administered since the late 1990s, Fitch observes. Slowing growth, a 1% reduction in goods and services tax and tax cuts to corporate, small businesses, and personal income, will however weaken Canada’s fiscal position, paring the surplus to a marginal 0.1% of GDP in 2008 from 1% in 2007, with risks to the downside. “Nevertheless, even if the fiscal balance were to tip into a deficit – which it could easily do – Canada’s budgetary position is likely to remain the strongest among the G7 nations over the next two years,” it adds.

A slowdown in exports, particularly of those sectors that cater to the U.S. consumer and housing industry, coupled with the relative strength of imports is likely to also cause Canada’s current account balance to slip into a small deficit of 0.7% of GDP in 2008, from a 0.9% surplus in 2007, Fitch forecasts.