A temporary surge in exports and consumer spending helped the economy grow faster than expected in early 2011, but Canada's central bank says expansion will slow in the months ahead.

The newest monetary policy report from the Bank of Canada says the economy grew by an estimated 4.2 per cent in the first quarter, improving on robust growth of 3.3 per cent in the final quarter of last year.

The bank says growth will slow down to two per cent in the current quarter, as a result of both short- and long-term challenges to the Canadian economy. Growth is expected to hover at 2.7 per cent in the second half of the year.

A supply shortage that has resulted in the wake of the disasters in Japan will cause problems in the short term, while a persistently high loonie will restrain export growth and make it harder for Canadian businesses to compete, now and in the future.

Bank governor Mark Carney told a press conference Wednesday that "the strong headwinds the Canadian economy is experiencing" are a result of the persistently high Canadian dollar.

As a whole, the Canadian economy is expected to grow 2.9 per cent this year and 2.6 per cent in 2012, at which point it will "return to capacity."

"It's important to recognize that our getting back to potential in the middle of 2012 is in part a product of the stance of monetary policy," Carney said.

"So we adjust monetary policy in order to achieve potential growth and we wouldn't necessarily get to that point on a different path of policy."

BNN's Linda Nazareth said the bank believes that "this year will see growth change a little bit in terms of its components," as the influence of the government fades and private sector investment increases.

"As the year goes on, they think businesses will kick in a little bit more, they'll invest more, which is good news and we'll also see a little bit more in terms of exports -- or net exports as they call it, exports after imports," Nazareth told CTV News Channel from Toronto on Wednesday morning.

Outside of Canada, the global economy is also posting gains as it recovers from a lengthy period of crisis.

The bank says the global economic recovery "is becoming more firmly entrenched" and investors are becoming less risk averse.

With files from The Canadian Press