UPDATE 1-World economy faces risks, but growth likely -Bank of Canada

(Adds details from panel, quotes, background, byline)
By Allison Lampert
MONTREAL, May 11 (Reuters) - While the global economy faces
a number of risks, including the potential for a shock from
China, the most likely scenario is that growth continues, with
some headwinds starting to slowly fade, a senior Bank of Canada
official said on Wednesday.
Nonetheless, the world economy's potential growth will be
lower than it was 10 years ago, partly due to demographic shifts
that policy cannot fully address in the short term, Senior
Deputy Governor Carolyn Wilkins said.
"There are a lot of downside risks, but I would say though
that the most likely thing is that the economy is going to keep
growing," Wilkins told a panel.
"There's not the typical inflation pressures you see that
would result in very abrupt increases in interest rates and
that's often what triggers downturns."
The Bank of Canada cut interest rates twice last year to
cushion the shock of cheaper oil. While the bank is expected to
hold steady when it meets later this month, odds of another cut
this year have risen following disappointing trade data and oil
production disruptions due to wildfires in Alberta. BOCWATCH
One risk the Bank of Canada thinks about is the potential
for a shock out of China, which affects Canada not only through
demand for exports but also the effect China has on commodity
prices, Wilkins said.
While the central bank expects China will experience slower
but more sustainable growth, the risks are "pretty important,"
she said.
But there are signs that some headwinds facing the global
economy are dissipating, Wilkins said, pointing to the U.S.
recovery.
"It's not going to go in a straight line but we see it
recovering," Wilkins said. A stronger U.S. economy is key for
Canada's export outlook.
"I think the focus is on the downside risks because there
just seem to be so many of them and we try to take some of those
on board so we have a balanced forecast," Wilkins added.
With the potential for world economic growth lower, the
neutral interest rate is also going to be lower and is in the
range of 2.75 to 3.75 percent for Canada, Wilkins said.