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TORONTO (Reuters) - The Canadian economy is expected to worsen in the first half of 2009 but may start seeing tentative signs of recovery as early as the third quarter, a Reuters poll showed on Wednesday.
Economists were more pessimistic in their outlook for the economy through 2009 and into 2010, compared with the previous quarterly survey in January, slashing forecasts for gross domestic product, the unemployment rate, housing starts, and the Bank of Canada's lending rate.
The survey of over 20 economists, conducted in the days after the end of the first quarter, forecast the economy will shrink by an annualized 2.5 percent this year -- more than twice the 1.1 percent contraction predicted in the January poll.
The gloomier outlook follows dismal early data for the first quarter that has put Canada on track for one of its worst economic performances in history. The median forecast is for a 6.1 percent contraction, which would follow a 3.4 percent downturn in the fourth quarter of last year.
The steepest quarterly decline on record for Canada was a 5.9 percent drop in the first quarter of 1991.
All economists surveyed said the economy would contract in the first three months of 2009, and all but one said the economy would shrink again in the second quarter.
Canada should eke out growth of 0.5 percent in the July-September quarter before accelerating in each quarter throughout 2010, the survey showed. Economists pegged growth in 2010 at 1.9 percent.
"I think that this particular recession certainly has some significant depth to it but is also likely to be of a protracted nature, so you're not going to get that big galloping recovery in 2010," said Stewart Hall, a strategist at HSBC Securities.
"I think that this particular recession will tend to have some fairly long legs to it."
Economists were convinced only six months ago that the Canadian economy would narrowly miss recession, defined as at least two consecutive quarters of contraction in GDP.
The fragile state of the economy will likely lead the Bank of Canada to cut its benchmark overnight rate to a floor of 0.25 percent from the current record low of 0.5 percent. Experts expect the overnight rate to remain there through to the end of the year, before inching higher.
The central bank is widely expected to cut the overnight rate on April 21, and some say a program of non-standard policy measures may be introduced to aid the economy from recession.
Housing starts are expected to average 145,000 units in 2009, slipping from the 212,366 units recorded in 2008, and well off the record 228,343 units in 2007. New home construction is seen averaging 155,000 units next year, the survey showed.
"The downturn in residential construction will be a big dampener on economic activity this year, not to the same extent as exports but up there with it and in the same ballpark," said Sal Guatieri, senior economist at BMO Capital Markets.
The median forecast for housing starts in 2009 is nearly 15 percent lower than in the January poll, and down more than 9 percent for 2010.
Canada's unemployment rate is expected to jump to 8.5 percent this year, according to median forecasts, steadily rising from the current 7.7 percent recorded in February. It is expected to edge up to 9.2 percent in 2010.
Canada's jobs data for March is due on Thursday.
Editing by Rob Wilson and Stephen Nisbet