BMO Nesbitt Burns’ chief economist, Sherry Cooper, says that 2004 is shaping up to be a very good year for the economy.

“It has been a very long time since the global economy was so strong and the surge in commodity prices is confirming it,” she says in a new report. “While some remain in the doldrums about the sustainability of the rebound, the fact is that there is barely a region of the world that is not showing meaningful signs of economic revival.”

“Canada is slated to enjoy the fruits of the accelerating global economy in coming quarters, and the stock market is telling us so,” she argues. “Few countries benefit as much as Canada from the strong performance in materials and industrial companies. The Bank of Canada was correct in remaining on the sidelines this week; another interest rate cut will likely prove to be unnecessary. This economic rebound is real, broadly based, and sustainable.”

Cooper says that elections next year in both the U.S. and Canada will mean, “big spending on campaigns, media, advertising, pork-barrel projects and major government initiatives (like the Medicare Drug Plan). Inevitably, growth is strong in an election year, particularly when the economy has already been in the early days of a business revival.”

Cooper also predicts that the U.S. dollar’s slide is likely to continue, boosting domestic manufacturing and improving the ever-widening trade deficit. “It also enhances U.S. corporate profitability, which is good news for the stock market,” she notes.

“With any luck at all, Canada will have the second strongest economy in the G-7 next year, stocks will continue to rise, albeit more moderately than this year, and family purchasing power will continue to increase meaningfully,” she says. “Inflation in Canada is incredibly low and falling, and while exporters have a legitimate gripe with the strong dollar, consumers have got to be loving it – not to mention investors in Canadian stocks, which have significantly outperformed on an exchange-adjusted basis.”

As for risks to her rosy outlook, Cooper concedes that terrorism and protectionism remain concerns. But, she says, “The biggest risk next year, in my mind, is an overheated U.S. economy. Yes, you read that right – too rapid growth could close the output gap too quickly, the difference between actual and full-employment growth. That would begin to put upward pressure on inflation in the U.S., leading many to wonder why they ever worried about deflation. Most importantly, it would cause the Federal Reserve to hike interest rates sooner than even they are expecting, and trigger a fairly major selloff in the bond market. That, of course, means higher interest rates. Is that a foolish thing to worry about only a few short months after the double-dip-deflation tirade? I don’t think so.”

“Canada will inevitably catch hold of this momentum as we finally shake off the vestiges of SARS, mad cow disease, and the blackout. Canadians will celebrate the new energy in Ottawa, the increased buying power of the dollar, and the first truly global commodity boom in roughly a decade. Looks like 2004 will be a very good year,” she concludes.