Economic growth will probably average 2% or less in the United States, Western Europe and Japan in 2008 because of the lingering fallout from tightening credit conditions and reduced global trade momentum according to a new report from Scotia Economics.

“Canada’s performance will be bolstered by significant fiscal stimulus, stronger consumer fundamentals and still-buoyant commodity exports, though growth is unlikely to average above 2.2% over the next two years,” according to Warren Jestin, Bank of Nova Scotia’s chief economist.

“For the major developed nations, the economic landscape is likely to be characterized by a significant weakening in production and job creation through the first half of 2008 followed by a lengthy period of convalescence,” Jestin says.

“The loonie’s meteoric rise against the U.S. currency partly reflects Canada’s newfound attraction as a resource-rich economy in a resource-short world, a positive for the currency that will be sustained by continued buoyancy in commodity markets through 2008,” adds Jestin. “Our twin merchandise trade and fiscal surpluses, a more cautious monetary policy and the tendency for global investors to diversify their portfolios across currencies and asset classes also favour the Canadian dollar.”

While the one-two punch from currency appreciation and weakening U.S. activity has dampened Canada’s expansion, relatively buoyant commodity markets will underpin growth, particularly in the western resource-based provinces.

Strong public and private construction activity, especially in the lead-up to the 2010 Vancouver Olympics, a vibrant mining sector, positive interprovincial migration and solid income growth should maintain British Columbia’s output growth of 3% in 2008.

Alberta’s growth should moderate somewhat, but remain strong at 3.4% in 2008, given robust province-wide construction activity, including continued oil sands development.

Saskatchewan’s economy will be fueled by robust mining activity, an inflow of new residents and solid income and wage growth, leading to 3.1% output growth this year.

Manitoba should expect growth of 2.5% in 2008 as public construction remains brisk, particularly with major work on the Wuskwatim dam this year.

A healthy service sector and solid non-residential construction activity should help to offset continued weakness in Ontario’s manufacturing and forestry sectors, resulting in output growth of 1.5% this year.

Quebec will witness similar goods-sector weakness, limiting growth to 1.7% in 2008.

Solid economic growth of 2.3% is expected for New Brunswick in 2008, led by strong construction and mining activity (including the development of a new potash mine) and the start-up of an LNG import terminal.

Nova Scotia’s growth should average 2.1% this year, also driven by construction and mining activity..

Prince Edward Island is expected to post the lowest growth across the Atlantic provinces this year due to a lack of new major construction projects on the horizon.

Newfoundland & Labrador is expected to average growth of 2.0% in 2008, largely garnering support from nickel mining and energy activities, with offshore oil & gas production expected to peak this year..

The Global Outlook and other Scotia Economics publications are available at www.scotiabank.com.