Canada’s provincial economies will record sluggish growth in 2003, and will likely only manage moderately better showings in 2004, say TD economists in a report released Wednesday.

“Adjusting to the new elevated level of the Canadian dollar will be the most pressing challenge facing provincial economies over the near term,” said Derek Burleton, senior economist at TD Bank Financial Group. “The impact of reduced trade competitiveness has only just started to bite,” added Burleton.

Burleton made his comments in support of the release of the TD Provincial Economic Outlook

The dramatic rise in the Canadian dollar is just one in a series of other blows that have pounded provincial economies in recent months — including SARS, mad-cow disease and persistent sluggishness in the U.S. economy.

“While most provincial economies entered this year comfortably in cruise control, as many as five provinces are now likely to see real GDP growth performances sink to 2% or less in 2003 — British Columbia, Ontario, Prince Edward Island, Quebec and New Brunswick,” Burleton said.

He added, “and while Newfoundland & Labrador and Saskatchewan are still likely to chalk up tallies of more than 4%, expansions in those provinces are likely to be concentrated in their resource sectors.”

Burleton said that the strength of the Canadian dollar is unlikely to diminish any time soon for provincial economies. TD forecasts that the Canadian dollar will climb back to US73¢ by the end of 2003 and US76¢ by the end of 2004.

In the report, TD economists estimate the net negative impact on provincial real GDP over the next year from the 12% appreciation in the Canadian dollar recorded so far this year. The worst hit will be Ontario and Quebec, where real GDP is projected to be reduced by 1.5 percentage points compared to what it otherwise would have been if the currency appreciation had not taken place.