Canada's economy seen losing some luster in 2011

Thu Jan 6, 2011 2:54pm EST
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By Ka Yan Ng

TORONTO (Reuters) - Canada's economy, which outperformed its Group of Seven peers through the financial crisis, is seen losing some of its shine this year, with growth slowing from 2010 and likely lagging the United States.

Top economists at the country's biggest banks on Thursday predicted modest growth of 2.2 to 3.2 percent in 2011, with a firm Canadian dollar constraining exports and the Bank of Canada expected to resume its rate hike campaign.

"It isn't going to be a gangbuster, but it's also not going to be a bad year," said Craig Alexander, chief economist at Toronto-Dominion Bank.

Canada was the star performer among the hard-hit G7 developed economies during the global recession, helped by its sound banking system and the fact it avoided the property crash seen in the United States and much of Europe. Unemployment has also been much lower than in its southern neighbor.

While final numbers are not in, the Bank of Canada and most economists expect the Canadian economy grew 3 percent last year well ahead of most G7 peers.

But Canada's central bank, which began hiking its key policy rate from a record low last June, expects growth to slow to 2.3 percent this year, weaker than the 2.7 percent growth many expect for the United States.

Even so, a panel of chief economists from Canada's five largest banks told a business audience on Thursday that the country's central bank will likely resume tightening. They see interest rates doubling to 2 percent by year end.

By contrast the U.S. Federal Reserve is likely to hold off on raising interest rates from record lows for a third straight year, even as the U.S. consumer boosts growth there, said Sherry Cooper, chief economist at BMO Capital Markets.   Continued...

<p>Skyscrapers loom over a flagpole carrying the Canadian flag in the financial district in Toronto, March 11, 2009. REUTERS/Mark Blinch</p>