By David Schepp BBC News Online's North America business reporter

Americans travelling to Ottawa for the recent meetings of finance ministers may have been stunned to see just how far the US dollar goes in Canada.

With one US dollar equal to about C$1.60, the deteriorating Canadian dollar means goods and services are a bargain for American tourists.

But while the deteriorating Canadian dollar, or loony, as it is called, may be a boon for Americans on holiday, it is a disaster for the Canadian economy.

Canada's economy is expected to "virtually stagnate" for the next four months, according to a new survey compiled by the Organisation for Economic Cooperation & Development (OECD).

This has been caused in part by the ills of the sinking loony.

Stagnate economy

The OECD estimate comes on the heels of a report released last week by the International Monetary Fund (IMF), which slashed its estimate of Canada's economic growth by nearly two-thirds to 0.8%, from previous estimates of 2.2%

Canadian Finance Minister Martin calls IMF growth predictions "too pessimistic"

Speaking during a meeting of the Group of 20 industrialised and developing countries in Ottawa over the weekend, the head of the country's central bank questioned the IMF forecast.

"That specific number should... be taken with of a grain of salt," said David Dodge, governor of the Bank of Canada, on Sunday.

"We have laid the basis here in Canada for a strong recovery."

It was sentiment shared by Finance Minister Paul Martin, who said he along with other finance officials from other countries - including US Treasury Secretary Paul O'Neill - found the IMF's predictions "a little too pessimistic".

Loony limps along

Messrs Martin and Dodge have good reason to be optimistic.

The same OECD report that shows growth slowing considerably in 2001, expects a strong rebound in the middle of next year and carrying on into 2003.

Canada's economy has seen robust growth during the last two years, having grown an average 4.8%.

In its own forecasts, the Bank of Canada has predicted growth rates of 1.5% in 2001 and 2002.

But while the Canadian dollar has experienced strength against the Greenback in recent days, continuing economic ails, including a rising unemployment rate, currently at 7.3%, continues to hamstring Canadian economy, now thought to be in recession.

In currency markets on Tuesday, the loony gave back some of its recent gains, falling a half percent to 62.8 cents to the US dollar - touching near record-low levels.

The loony has fallen 5% since June to a record low 62.3 cents on 9 November, reeling under the effects of a slowing world economy, terror attacks in the US and falling commodities prices.

Slashing interest rates

Canada's responses to a sinking loony and other economic ills have been similar to those of the United States.

The Bank of Canada has slashed interest rates eight times this year.

That compares with the 10 cuts by the US central bank, the Federal Reserve, over the course of the year.

While reducing the costs of borrowing may help some exports sell more cheaply in foreign markets, Canada's main exports, such as oil and other commodities, are priced in US dollars.

Depressed stock prices are also keeping investor interest at bay - just as in the US.

But unlike its southern neighbour, Canada's weak currency is putting pressure on the apathetic mood of investors, spreading further gloom within the nation's economy.

With Canada's fortunes tied so closely to those of the US, it is no wonder two of its provinces - Ontario and Alberta - are once again contemplating adopting the US dollar as their currency.