Economists at TD Bank have lost some of their optimism for Canada’s economic prospects in 2008 and now expect growth of just 2.3% rather than the 2.9% forecast this spring.

“The further run-up in the Canadian dollar and modest downgrading in our U.S. growth outlook have led us to shave about half a percentage point, on average, to 2008 growth performances in most parts of the country,” the bank in its latest provincial economic outlook.

“Furthermore, 2009 is shaping up to be another sub-2.5% performance in about half the provinces, including Ontario and Quebec,” it said.

The outlook sees evidence that the gap between the resource-based western provinces and the rest of the country is narrowing.

“Alberta’s economy appears to have started to cool in 2007, largely reflecting the effects of lower natural gas prices, a pullback in drilling activity and a tapering off of growth in the province’s white-hot housing market,” it said.

For 2008-2009, the economists expect manufacturing-heavy central Canada to record the weakest growth, with Atlantic Canada faring somewhat better due to several large projects in the energy and non-energy resource sectors.

They also see the Canadian dollar shedding some of its value.

“The Canadian dollar is over-valued and is likely to gravitate back to US90¢ by the end of 2009,” the outlook says.

“However, this gradual depreciation will still leave the currency at a high level throughout the forecast period, leading to ongoing adjustments in the export-oriented manufacturing sector.”

The U.S. economy is projected to expand at an annual average rate of only 2.4% in 2008 before accelerating to 3.1% in 2009.

Strong global growth of 4.8% in 2008 and 4.4% in 2009 is expected to keep commodity prices firm, with crude oil averaging about US$70 a barrel.