Canada’s economy is poised for better growth in 2004 while strong demand from the United States is expected to lead the upturn in the world economy, says the latest economic forecast from RBC Financial Group.

“Last year we saw the resilience of the Canadian economy as it grew by 1.7% despite several negative shocks,” said Craig Wright, VP and chief economist, RBC Financial Group, in a news release. “This year we expect the Canadian economy to improve by capitalizing on some of the opportunities presented by a strong currency, low interest rates, and an improving global economy.”

RBC forecasts the Canadian economy to by 3.2% in 2004 and 3.6% in 2005. Although strong U.S. demand is expected to soften the blow of the Canadian dollar’s rise for exporters, RBC says the onus for growth on the domestic side of the economy.

The RBC forecast says the Canadian dollar is expected to hit US80¢by the end of 2004 and remain at that level for the remainder of 2005. It says the Bank of Canada is likely to cut rates once more in 2004 in support of the domestic economy.

As for the U.S. economy, RBC forecasts growth 5% this year and 3.5% for 2005. “A stubbornly weak labour market remains the Achilles heel of the U.S. recovery, but it is slowly improving and is expected to firm up by year-end,” noted Wright. “Improving business confidence will give way to a long-awaited rebound which will solidify the sustainability of a U.S. economic expansion.”

With short-term interest rates well below neutral levels and consumer price inflation stabilizing, the U.S Federal Reserve is expected to start hiking interest rates in September. However, RBC says a failure of the labour market to strengthen in the spring and summer would delay the first rate hike into 2005 given the November Presidential election.

RBC’s forecast also bodes well for the other G7 countries. It forecasts growth of 4% for Japan this year, the second strongest in the G7.

The U.K. economy, which grew by 2.1% in 2003, is expected to increase by 3.5% in 2004.

Continental Europe’s three largest economies — Germany, France and Italy — are all recovering after sinking into recessionary conditions in the first half of 2003. RBC expects growth to improve this year in the Eurozone, but remain relatively low at 1.8%.