OTTAWA - Canada's economy is now expected to grow faster and to create more jobs this year than the federal government projected in its budget last month, the Finance Department said Monday.

The department, basing its report on a survey of 15 private sector economists, said it expects the economy to grow by 3.1 per cent this year, half a percentage point more than the budget projection.

Unemployment, meanwhile, should average 8.1 per cent, four-tenths of a point lower than the March forecast, the department said.

For the subsequent two years, it estimates the economy will expand by 3.1 per cent and 2.9 per cent, one-tenth of a point less than in the budget projection.

The new forecast has implications for the federal deficit as Ottawa now expects the country's gross domestic product to be $14 billion higher than projected by the time 2014 rolls around.

Finance Minister Jim Flaherty used a consensus of the 15 private sector forecasters for his budget introduced in early March to project a $49.2-billion deficit in the current fiscal year.

But a larger economy would, all things being equal, result in a bigger tax haul by Ottawa and could result in a smaller deficit this year, and likely going forward.

The government said it won't update its fiscal numbers until the fall, however.

"Overall, the March survey results suggest that the near-term outlook has improved since the December survey was conducted," the department said.

"In particular, the results of the fourth quarter of 2009 were stronger than expected by forecasters in December, and recent indicators for the first quarter of 2010 suggest that the economic recovery is continuing."

According to Statistics Canada, the country's economy rebounded to a five per cent annual growth rate in the last three months of 2009, and expectations are it expanded by about six per cent in the just completed first quarter.

Those numbers took most economists off guard and have led to speculation that the Bank of Canada will need to raise interest rates in the next few weeks to guard against inflation.

The new projections come a week after the Bank of Canada upgraded its forecast for Canada's economic growth even higher than the new Finance Department's numbers -- to 3.7 per cent this year and 3.1 per cent next.

However, the central bank has economic growth slowing to 1.9 per cent in 2012, whereas Finance is still projecting a 2.9 per cent advance.

The department said it was not changing its working assumption for the last two years of it's forecast horizon, GDP growth of 2.8 per cent in 2013 and 2.6 per cent in 2014.