The strong Canadian dollar has finally slowed Canada’s economy, limiting real gross domestic product (GDP) growth in 2005 to 2.5%, the Conference Board of Canada said today.

While the drag of the currency will be less pronounced in 2006, allowing growth to edge up to 2.8%, it will force the economy to rely on consumer spending and strategic investment, rather than the export sector, according to the board’s winter 2005 outlook.

“There is an 80 U.S.-cent speed limit on the Canadian economy,” said Glen Hodgson, the board’s chief economist.

“Canada’s trade sector held up well during the first half of 2004, but lost steam in the third quarter when the Canadian dollar surpassed 80 U.S. cents.”

With commodity prices — which typically move in more or less direct correlation with the Canadian dollar — expected to ease, the board expects the domestic currency to average US79¢ in 2005 and US78¢ in 2006.

The Canadian dollar was at US 82.27¢ just before midday on Tuesday. It rose just under 8% in 2004 and climbed more than 20% in 2003.

Canadian consumer spending and strategic investment will drive economic performance over the next two years, according to the report.

“Respectable job creation, unwavering consumer confidence, solid wage gains and low financing rates will sustain consumption activity.”

Business investment is seen accelerating this year, in particular investment in machinery and equipment, which is seen growing 8.3%.