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A Canadian dollar, or loonie, sits on its American counterpart (Ryan Remiorz/The Canadian Press)
A Canadian dollar, or loonie, sits on its American counterpart (Ryan Remiorz/The Canadian Press)

Economy Lab

Goldman sees loonie reaching $1.05 Add to ...

Canada's economic growth will pick up speed this year, the Canadian dollar will appreciate and the unemployment rate will slide below current levels, Goldman Sachs says in a report re-jigging its take on the economic outlook.

In the near term, the Canadian economy hasn't performed as well as expected. Goldman cut its forecast to 1.5 per cent annualized growth for the fourth quarter of 2010 from its prior estimate of 2.5 per cent, citing sluggish domestic demand.

But it boosted its forecast for growth later this year. It now sees growth accelerating to 3.3 per cent in the second quarter of this year, and 3.5 per cent in both the third and fourth quarters amid improving domestic demand. It has also boosted its outlook for the U.S. for mid-2011 through early 2012 because of the tax and fiscal package passed by Congress and signed by President Barack Obama two weeks ago.

The Canadian dollar, meantime, looks poised to strengthen amid broader U.S. dollar weakness. It cites several reasons for the call: Stronger manufacturing exports to the U.S., interest rate hikes in Canada ahead of the U.S., and rising prices for oil and other commodities.

It sees the loonie reaching $1.05 against the U.S. dollar, from parity currently.

Unemployment is expected to creep higher, before easing to 7.5 per cent by year's end. The rate is currently 7.6 per cent. And core inflation will likely remain below 2 per cent. Goldman doesn't see a Canadian interest rate hike until the fourth quarter of this year.

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