* Panel forecasts Canada GDP up 2.2-3.2 pct this year
* Expects Canadian dollar will be steady near par
* Interest rates to rise gradually to end year at 2 pct
By Ka Yan Ng
TORONTO, Jan 6 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
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. ECONPOLL1
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.
Warren Jestin, Bank of Nova Scotia's chief economist, said
the "pedal to the metal" fiscal stimulus policies, particularly
in the United States, should be enough to keep the North
American economy growing around 2.5-3 percent, while Europe and
Japan grow at a slower pace.
Jestin said it was clear there was a two-track recovery,
and that emerging market economies such as Brazil, China, India
and Russia will be increasingly important to global growth.
The panel noted that demand for commodities from these
growing economies will remain firm and should benefit exports
from Canada's resource-based economy.
They also agreed the Canadian dollar would probably trade
near equal value with U.S. currency this year, supported by
continued growth and rising rates. This matched median
expectations in a recent Reuters currency poll. [CAD/POLL]
But CIBC chief economist Avery Shenfeld warned the Canadian
dollar and other commodity-linked currencies could be
vulnerable to a reversal in resource prices.
Shenfeld was cautious about resources, noting that oil and
other commodities have been trading more like financial assets
than as the materials used to fuel cars or build things.
"Commodities today may have actually overshot supply and
demand fundamentals," he said. "I wouldn't be surprised if in
the first half of the year we start to see commodities prices
edge a bit lower from where we are now."
PUBLIC STILL WARY ON OUTLOOK
Even as the country's top economists predicted further
growth, a poll showed many Canadians are less optimistic about
the state of the economy than they were a year ago.
Almost 30 percent of survey respondents expect moderate
economic growth ahead, compared with 17 percent in December
2009. But only 38 percent of Canadians think the economy will
improve in the next 12 months, compared to 54 percent who felt
that way in December 2009, according to the Economic Club of
Canada/Pollara poll published on Thursday.
One in five Canadians feel the economy will worsen this
year, compared to 14 percent who felt that way one year ago.
The survey was taken between Dec. 10-15, shortly before a
recent spate of U.S. and Canadian economic data deepened hopes
that the recovery is entrenched.
"The recession is over. If people aren't getting more
optimistic almost by the day, then they're probably not paying
attention," said Craig Wright, chief economist at Royal Bank of
(Editing by Jeffrey Hodgson)