The economy grew in the fourth quarter, but at a slower rate than earlier in the year, Statistics Canada said today.

The soaring dollar hurt manufacturing, exports and corporate profits in the final quarter of 2004, weakening overall performance.

Real gross domestic product rose 0.4% in the quarter, about half the 0.7% rate in the third quarter.

Total economic growth was 2.8% last year, with much of the gain coming in the second quarter. The final quarter was the weakest.

Annualized growth in the fourth quarter was only 1.7%.

The growth was homegrown; exports in the quarter fell again, following a drop in the third quarter, but domestic demand surged 1.1%.

In contrast to Canada’s annualized 1.7% gain, the U.S. economy grew at an annualized rate of 3.8% in the final quarter.

Corporate profits rose just 1.5% in the quarter, the same gain reported in the third quarter. “Declining exports restrained manufacturing profits, and earnings weakened among financial corporations,” StatsCan said.

Inventories grew by $19.2 billion in the quarter, with wholesale trade and manufacturing, especially durable goods, accounting for a lot of the increase.

For the full year, corporate surpluses “burgeoned as profits skyrocketed” to a 17.7% gain. With more money available, businesses increased investments in machinery and equipment by 9.4%.

But Canadians continued to spend freely, driving the savings rate to the lowest level since the 1930s. Spending growth outstripped increases in income.