With signs of weakness in the economy caused by SARS, mad cow, and the B.C. forest fires, the Bank of Canada is expected to cut interest rates this week.

Analysts are forecasting a quarter-point cut in the central bank’s key lending rate Wednesday.

That would reduce the overnight rate to 2.75% from the current 3%.

“The U.S. economy is doing better than expected but there are new shocks in Canada and inflation has been surprising on the downside – so all that is pointing to a cut of a quarter (point) on Wednesday,” said John Johnston, economist with RBC Capital Markets.

Inflation, a major concern for the Bank of Canada, has been steadily weakening to the point that in July, the core inflation rate was below the bank’s target.

And Friday’s report of a dramatic slowing in the gross domestic product is also bound to affect the rate, even if central bankers will focus on a wider range of economic statistics.

Canada’s economy shrank for the first time in almost two years during the second quarter. Statistics Canada said GDP shrank by 0.3% on an annualized basis, surprising analysts, who expected a flat figure.

They blamed the slowdown on sudden shocks to the economy rather than any deep-rooted flaws.

The series of jolts began in the spring with SARS, continued with a freeze on Canadian beef exports after a mad-cow scare, and was followed by the B.C. fires and a massive power blackout that hit Ontario on Aug. 14.

That means growth should recover to approach 2.5% in the third quarter, said Doug Porter, senior economist with BMO Nesbitt Burns.