TORONTO, Jan 20 - Canada's stuttering economy will take a turn for the worse before it gets better, according to a poll that saw analysts lower their growth expectations once again but paint a rosier picture for inflation and employment in 2004. The survey of 16 economists, conducted January 12 to 13, showed forecasts of annual growth slipping, with some citing the impact of the stronger Canadian dollar on the country's export-dominated economy. Analysts mostly expect interest rates to fall in the first half of this year to 2.25 percent, before tightening starts. Rates are seen back at 2.75 percent by year-end, with further hikes in 2005. This is the current rate ahead of a Bank of Canada meeting later on Tuesday, when a narrow majority of primary bond dealers forecasts a cut.
The economic survey produced a median forecast of 2.8 percent growth in gross domestic product this year, down from 3.0 percent in the previous survey taken in October. Last year, analysts ratcheted down their growth forecasts as the economy took a series of unexpected hits, including the SARS outbreak in Toronto, a case of mad cow disease that paralysed the beef industry, and a surging currency that bit into exporters' revenues. But 2004 is seen as a rebound year, starting soft then building to decent gains. The economy started growing again in the third quarter of 2003, albeit slowly, rising an annualised 1.1 percent. The official fourth-quarter numbers are due at the end of February, but analysts already expect the period was a vast improvement with year-end pegged around four percent. "You've really got a split personality in the economy," said Marc Levesque, senior economist at Toronto-Dominion Bank. "The external sector is feeling the pain from the stronger currency but the domestic side of the economy is doing pretty well." GDP growth is expected to be healthier in 2005 at a median of 3.1 percent as rate cuts last year work through the economy. The U.S. economy, which is expected to lead the global recovery, is seen pulling Canada along as well. "I'm assuming that there are not going to be any severe shocks to the economy...(and) that the (Canadian dollar's) appreciation is not going to be sudden, nor extensive." said Shooshan Danagoulian, economist at IDEAglobal. Experts say the Canadian dollar , which rose 17.5 percent in 2003, will steady this year, a statement that belies the C$1.20 to C$1.40 range forecast for end-2004 in a recent survey of 44 analysts around the world. The Canadian dollar was trading on Tuesday at just under C$1.30 to its U.S. counterpart. This year economists forecast a median inflation rate of 1.6 percent. The central bank sets policy with an aim to keep inflation at the mid-point of its 1.0 percent to 3.0 percent target range.
"There are several factors exerting downward pressure on inflation. They include the downward pressure on import prices because of the appreciation of the Canadian dollar," said Wojciech Szadurski, senior economist at Global Insight. The unemployment rate is seen declining steadily, with the median forecast putting it at 7.25 percent by year-end. The December jobless rate was 7.4 percent, easing from November's 7.5 percent. It also came on the back of a fourth consecutive month of big job gains. Statistics Canada said job creation over the last four months of 2003 totalled 219,000, four times the increase of 52,000 observed during the first eight months. "Canadian markets have been, overall, pessimistic about Canadian labour markets," said IDEA's Danagoulian, who sees the unemployment rate dropping steadily throughout the year to a survey-low of 5.5 percent. "I think 2004 is going to be a lot stronger than a lot of people believe."//