Economy review of Canada

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 (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. 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 Canada.