The head of the Bank of Canada said today that any economic downturn will likely be a “mild and likely short-lived cyclical slowdown.”

Speaking at the Ontario Economic Leadership Summit in Niagara-on-the-Lake, Bank of Canada governor David Dodge said Ontario’s ties to the U.S. economy will hurt the province, but he added that the service sector remains in good health.

“When you consider that automotive products made up 44% of Ontario’s merchandise exports last year, it is clear that the U.S. downturn will likely affect Ontario more severely than other provinces,” he said, adding that related manufacturing industries could also continue to face serious challenges.

“Overall, Ontario may well under-perform the Canadian average for the balance of this year and in 2007. Nevertheless, modest growth in Ontario’s economy should persist,” he said.

The Canadian central bank last week downgraded its outlook for the economy for the remainder of 2006 and 2007.

The bank reduced its 2006 growth forecast to 2.8% from its earlier forecast of 3.2%. Its 2007 outlook was also cut to 2.5% from 2.9%. The 2008 growth forecast remained unchanged at 2.8%.