Bank of Canada governor David Dodge says he thinks the Canadian economy will weaken in the fourth quarter of this year and the first half of next year before recovering later in 2008.

Dodge appeared today for the last time before the Senate banking committee in Ottawa. He retires as head of Canada’s central bank in January

He told the committee that the major risk for the economy is weaker demand in the United States for Canadian exports.

Dodge said the Bank of Canada’s decided to reduce its key overnight interest rate on Tuesday because of were worsening difficulties in the financial markets and anticipated losses in the U.S. subprime mortgage market.

The central bank’s next rate decision is on Jan. 22, 2008.