The strength of the Canadian dollar versus its sickly US monetary cousin weakened the nation's economy in the fourth quarter of 2004.

Government agency Statistics Canada reports an exports shrinkage of 0.9% in Q4. Merchandise exports contracted 1.1%, but services exports rose 0.8%. Imports rose two percent, slower than the 3.4% gain in Q3.

The Canadian dollar gained 7.1% against its US counterpart, making Canadian goods abroad more expensive.

However, the domestic market is thriving, with consumer, business and government spending all rising. As a result the Bank of Canada is expected to keep interest rates steady for the first half of this year to fuel domestic demand.

Overall the economy grew 2.8% in 2004, accelerating from two percent in 2003.

Says Marc Lévesque, chief strategist at TD Securities: "Broadly speaking the underlying picture squares well with the bank's view on the economy: strong domestic growth, weak exports and an expansion running slightly below trend in the first half of 2005."

Data sourced from Wall Street Journal Online; additional content by WARC staff