Canada’s economic growth cooled slightly in the fourth quarter as rising imports crimped the expansion, Statistics Canada said today.

The government agency said the economy grew at an annualized rate of 2.5% in the fourth quarter, decelerating from the 3.5% pace set during the third quarter.

“Domestic spending remained very strong, rising 1.1% in the fourth quarter,” said the government agency.

“However, an increasing share of this demand was satisfied through imports, which rose 2.7%, keeping growth in check.”

The results for the last three months of 2005 were weaker than expected. Economists had been looking for fourth-quarter annualized growth of 2.7%.

In December, monthly output was up 0.4%, after increasing by 0.2% in November and 0.3% in October.

For 2005, GDP increased 2.9%, matching 2004’s growth rate.

Royal Bank economists expect the Bank of Canada will raise the overnight rate to 4.5% by the third quarter of 2006 from the current 3.5%.