International Business : Despite Clouds, Canada Heads for Another Bright Economic Year : Output: Analysts predict the country will lead in growth among Group of Seven nations.

Canada’s robust economy, powered by strong exports to the United States, could cool in the new year as higher interest rates dampen growth on both sides of the border, economists say, but many experts still expect another banner year for the country.

After shrinking for the first two years of the decade, Canada’s output has slowly but steadily rebounded, and the nation is forecast to lead growth in the industrialized world in 1995.

Canada’s economy grew by an estimated 4% in 1994, and economists are predicting it will expand at a rate of 3.5% to 4% in 1995. This would put it at the head of the pack among Group of Seven industrialized nations, of which it is the smallest member.

“I think we are going to see continued strength in the economy, with (1995) growth averaging 4% or higher--a solid year,” said Michael Gregory, an economist at CIBC Wood Gundy.

“In terms of growth, we are looking for another banner year for Canada, with exports being the driving engine of growth,” said Aron Gampel, deputy chief economist at Bank of Nova Scotia.

Canada ships large quantities of automotive products, machinery, equipment, industrial goods and materials, forestry, energy and agricultural products to the United States. Those exports have been helped by a sharp decline in the value of the Canadian dollar against the U.S. dollar.

Gampel said Canada’s exports to countries in the fast-growing Asia-Pacific region could also pick up next year.

There is other good economic news. The unemployment rate has finally fallen below double digits--it was 9.6% in November--after averaging 11.3% in 1992 and 11.2% in 1993.

With continued low inflation, which economists predict will remain at about 2% next year, next year looks bright for the Canadian economy.

But there are clouds on the horizon. Canada’s dollar has dropped by about 20% against the greenback since late 1991, and some foreign investors believe it could weaken further.

Although the cheap dollar has spurred exports, it has also forced interest rates up as investors demand a premium to cover the risk of further devaluation.

The rapid rise in interest rates in 1994, which could continue, is hurting consumer spending in such rate-sensitive areas as durable goods and housing, economists say. It has also added to the cost of servicing Canada’s bulging public-sector debt.

The fiscal 1996 budget due in February will test the Liberal government’s commitment to cut spending and reduce the deficit from substantial levels.

The federal Liberals have vowed to cut the budget deficit to about 3% of gross domestic product by the end of 1996-97 from about 5.9% at the end of 1993-94.

Political uncertainty also shadows Canada’s future.

A separatist government in the mainly French-speaking province of Quebec has said it will hold a referendum on splitting away from the rest of Canada during 1995.

That prospect has the potential to destabilize financial markets and keep interest rates high until after the vote is held, economists say.

Opinion polls, however, show that most people in Quebec are unwilling to sacrifice economic well-being for independence.