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OTTAWA (Reuters) - Oil prices will continue falling and dip below $100 a barrel by the end of this year, unmasking an "export recession" in Canada that will result in anemic growth, a government export agency said on Thursday.
Export Development Canada forecast export growth this year of 4.2 percent in terms of value. But that is an artificially pretty picture based entirely on the dramatic surge in oil prices, EDC said in its quarterly Global Export Forecast.
Canada is a net exporter of crude oil and the top energy supplier to the United States.
In April, the EDC forecast 2008 export sales would decline 2 percent but Peter Hall, vice-president and chief economist at EDC, emphasized that the new forecast, while appearing more bullish, is far from it.
"It really is masking an export recession that we've got going right now," Hall told Reuters.
In volume terms, he sees exports falling 4 percent.
"That's a grave turnaround of events. That 4 percent drop in volume activity is in spite of the fact that volumes in the agri-food, energy and fertilizer sectors have been robust and so the number, absent those sectors, is actually worse," he told Reuters.
For 2009, the agency sees total exports falling 1.2 percent in value but a 1 percent rise in volumes.
That outlook is based on expectations of a sharp downturn in oil prices, the spill-over effects from the U.S. subprime crisis, the impact on consumers of soaring prices and a global slowdown that is now spreading to major emerging economies such as China and India.
Speculative investors have been behind much of the recent climb to record highs in oil prices, Hall said, but that behavior is now starting to unwind. When the U.S. dollar stops falling against the euro, speculators will abandon crude and prices will fall, averaging about $84 a barrel in 2009, he said.
"While EDC recognizes that global supply and demand for crude is tight, we see signs that a large price correction is on the horizon," Hall said.
The Canadian dollar, which has been hovering near parity with the U.S. dollar, will likely decline in line with commodity prices to trade in a range of 94 U.S. cents to 97 U.S. cents in the first half of 2009, he said.
Despite efforts to penetrate new markets, Canada still exports three-quarters of its products to the United States.
The EDC's best-case scenario for the U.S. economy is a recovery beginning in late 2009, but Hall said he believes the upturn is unlikely to happen before early 2010.
As a result, "We don't see good things for Canada," he said.
"The fact that we can generate only 1 percent GDP growth for the year in 2008, with a strong domestic economy, speaks to the extent to which export sector is a real drag on total activity."
Reporting by Louise Egan; Editing by Peter Galloway