A stronger U.S. economy should help Canada recover in 2004 from the impact of the SARS virus and weakness abroad, according to a report released on Tuesday by the Paris-based Organization for Economic Co-operation and Development.

The Canadian economy, hammered by the mad cow incident in Alberta, SARS, a surging loonie, global weakness and now raging forest fires in B.C., will grow 2.7 per cent this year, the OECD said.

The forecast is the same as the one the OECD issued in April, the same month that saw the first outbreak of SARS in the Toronto climax with a travel advisory against the city by the World Health Organization.

At 2.7 per cent, the Canadian economy is considered to be growing below its potential. The ideal figure is three per cent.

For 2004, the OECD expects Canada's economy to enjoy growth of 3.4 per cent thanks to a long-delayed rebound in the economy of chief trading partner the U.S. In April the OECD also forecast Canadian gross domestic product to grow by an annual 3.4 per cent next year.

At 3.4 per cent the Canadian economy will be enjoying the same rate of growth as in 2002 when it led the other G7 nations and was dubbed the "northern tiger" by the federal Liberals.

The forecast by the OECD follows Statistics Canada's report last Friday on second-quarter GDP. Economic growth stumbled in the April-to-June period and gross domestic product contracted by 0.3 per cent. In the first quarter, GDP grew at an annual rate of 2.6 per cent.

The OECD's report also comes the day before the Bank of Canada is widely expected to cut interest rates by at least 25 basis points, or a quarter of a percentage point, to help stimulate the battered economy.

"If the negative shocks buffeting the Canadian economy prove larger or more persistent than expected, then a temporary monetary response may be called for," the OECD said in reference to action by the central bank.

"Looking forward, the bank will need to resume the process of removing the remaining monetary stimulus once the effects of the current negative shocks dissipate."

The OECD said Canada has done a good job of shrugging off weakness in overseas economies, but has suffered from SARS and this year's wild gains in the value of the loonie. The other challenge has been the bans on Canadian exports of Alberta beef after the discovery of a single case of mad cow disease.

Nonetheless, "Canada's recent economic performance has been stronger than in most other OECD countries. In particular, and despite close trade integration, the 2001 slowdown was shorter and the subsequent recovery stronger than in the United States."

Supporting the economy has been strong household spending thanks to a solid job market, low interest rates and consumer confidence.

"Although the current slowdown could last a little longer in case of a delayed or sluggish U.S. recovery or because of the impacts of SARS and BSE, economic activity is expected to gradually pick up again toward the end of the year and through 2004 as the global economy gathers strength," the OECD said.

The think tank warned that, regardless of how quickly the Canadian economy shakes off this year's challenges, it must still "focus on boosting innovation, competition and skills" to improve its level of productivity and reduce "persistently high" unemployment.