CIBC World Markets forecasts that the Canadian economy will grow by 2.5% this year and 3.2% in 2005. Both estimates are below current Bank of Canada expectations for growth.

“Economic growth is likely to remain sluggish over the balance of this year,” says Jeffrey Rubin, CIBC World Market’s chief economist.

Rubin expects the Bank of Canada to cut interest rates again this year in the face of a deteriorating job market, pushing the central bank’s overnight target rate to 1.75%, a 46 year low. Interest rates are expected to stay at that level throughout 2005.

The CIBC World Markets forecast calls for a further decline in the value of the Canadian dollar this year, as once-generous Canada-US interest rate spreads continue to narrow. By year-end, Mr. Rubin said the Canadian dollar should have retreated to the 72¢-73¢ level.

Higher oil prices should see inflation peak at just under 2% by the end of the year. With little near-term reserve capacity in OPEC, and soaring global demand for crude, CIBC World Markets predicts that oil will reach US$40 per barrel by the fall and stay at that level throughout 2005.

Butt Rubin noted that while the initial impact of high oil prices will be to temporarily raise inflation, energy prices will act as a brake on the North American economy, and will ultimately weigh in the direction of keeping interest rates low.