Laurentian Bank of Canada predicts economic growth will contract by 0.5% in Canada next year.

The Montreal-based bank released its economic outlook on Tuesday, saying the Canadian economy will be hampered by both the global economic slowdown and the recession in the United States.

The bank notes a troubled U.S. economy will weaken trade with Canada’s largest partner.

Laurentian says imports, exports, home construction and business investment will all be hit by the slowdown and bank interest rates will remain low.

It also predicts unemployment will rise next year to 7%, but says the extent of job losses won’t be known until the fate of the financially-troubled big three automakers is resolved.

Total employment fell by a hefty 70,600 jobs in November, and the unemployment rate edged up to 6.3% from 6.2%.

Laurentian says the Canadian dollar will likely trade on average between US80¢ and US85¢ in 2009, and that interest rates in Canada should remain very low.

“The Canadian economy in 2009 will face challenges far more demanding than those in previous years,” said the statement, written by Laurentian Bank economists Carlos Leitao and Sebastien Lavoie.

“The financial crisis impeding economies worldwide since the last quarter of 2008, coupled with a major economic slowdown, will have a growing impact over the year on Canada’s economic environment.”

IE