Aug. 9 (Bloomberg) -- The Canadian economy will grow faster over the next 12 months than previously expected, as demand for the country's goods abroad strengthens, a Bloomberg News survey of economists showed.

Canada's economy, the world's eighth largest, will expand at a 3.2 percent annual rate this quarter, the most in a year and 0.3 percentage point higher than estimated last month, based on the median of 9 forecasts in the survey taken from July 29 to Aug. 5.

``Domestic demand growth in Canada has been extremely robust and that has been offset by a weakness in net exports,'' said Ted Carmichael, an economist with J.P. Morgan Securities. ``As we look into the third quarter, there is a pickup in industrial activity around the world, and that will translate into an improvement in the net export situation in Canada.''

Analysts also predicted growth would slow to 2.9 percent in the last quarter of this year, unchanged from the previous survey, before accelerating to a 3 percent rate in the first half of 2006, up from earlier predictions of 2.9 percent in the first quarter and 2.8 percent in the second. For the next three quarters, Carmichael expects the economy to grow faster than the 3 percent the central bank estimates is the highest rate at which the economy can grow without sparking inflation.

Other economists, such as CIBC World Markets' Warren Lovely, predict the economy will slow after the third quarter, as higher oil prices hobble world demand.

``We expect a temporary rejuvenation of factory output'' in the third quarter, Lovely said. ``What we saw in the U.S. in the second quarter was a significant drawdown of inventories. What's going on now is a temporary inventory rebuilding process and Canada is going to benefit from that.''

Lovely predicts the economy will grow 3.3 percent, 2.3 percent and 2.8 percent over the next three quarters.

The faster expected growth will help boost the Canadian currency, which analysts said would appreciate against its U.S. counterpart in coming quarters to peak at 83.82 U.S. cents in the first three months of 2006, from 82.41 at 8:34 a.m. today. It will then drop to 81.43 U.S. cents in the third quarter of 2006.

Faster growth also mean unemployment will rise to 6.9 percent from its current 6.8 percent rate in the second quarter of next year, based on the median of seven estimates. In July, economists had predicted the jobless rate would reach that level six months earlier.

Still, economists said faster growth wouldn't lead the Bank of Canada to accelerate its plan to increase rates from the quarter-point raise per quarter over the next year they predicted in the last survey. What's more, economists lowered their predictions for the yield on the 10-year benchmark bond. It will rise from 4 percent in the third quarter to 4.25 percent twelve months later. In July, economists predicted it would be 4.1 percent in the third quarter and rise to 4.5 percent a year later. That's because inflation will remain tame over the long run and the Bank of Canada won't be required to raise interest rates as much as was expected before, CIBC's Lovely said.

To contact the reporter on this story: Alexandre Deslongchamps in Ottawa at adeslongcham@bloomberg.net.

Last Updated: August 9, 2005 09:21 EDT