After a strong 2004, Canadian industry will experience more modest growth prospects in 2005 thanks partly to the higher Canadian dollar, TD Economics said Thursday in a new report.

According to the semi-annual edition of Canadian Industrial Outlook, operating bottom lines jumped nearly 20% in 2004 building on strong gains from the year before. But TD economists Derek Burleton and Carl Gomez note the impact of a higher loonie will put a greater squeeze on Canada’s trade-reliant industries this year as commodity prices cool down a notch in tandem with moderating global demand. Job growth will be affected as a result.

The report forecasts that during 2005, about 150,000 jobs will be created, the slowest pace since 2001. This is largely owing to an expected decline of about 50,000 factory jobs, as producers attempt to improve productivity and lower costs. However, that weakness should be counterbalanced by ongoing expansion in other areas, notably the service sector and industries geared toward the Canadian market for sales.

The higher C$ will hit manufacturing industries the hardest, in particular the machinery and transportation sectors, but also some resource and tourism-related industries.

But some sectors will be helped by the higher dollar, such as those industries that import a high percentage of capital equipment and software from the U.S. “Those industries are seeing a greater opportunity to invest and utilize this productivity-enhancing material now that the higher loonie has made them cheaper,” the report says. “Ultimately improved productivity could translate into a higher standard of living in Canada.”

The report says the situation today will not be a dire as it was between 1987-91, the only other notable period in post-war history that the Canadian dollar appreciated so dramatically, contributing to the long recession that followed.

“That is because today’s economy is benefiting from a number of offsetting tailwinds including comparatively better global growth conditions, lower real interest rates, strong corporate and consumer balance sheets and good government fiscal positions. Moreover, the Canadian dollar has not appreciated to as high a level, compared to the 1980s.”

The report is available at www.td.com/economics.