North American newsprint capacity will increase at an average annual rate of 3.4 percent in the three-year period ending 1981, up sharply from a 1.7 percent annual average in the five-year-period ended 1978, the Canadian Pulp and Paper Association said in its annual forecast.

The producer's group estimated that total North American newsprint capacity will climb from 12.7 million metric tons in 1978 to 14 million metric tons in 1981.

U.S. growth, at an annual average of 6.6 percent, is expected to outstrip Canadian growth of 2 percent per year during the forecast period. U.S. capacity is expected to climb to 4.5 million metric tons in 1981 from 3.7 million metric tons in 1978. Canadian capacity will grow to 9.5 million metric tons in 1981 from 8.9 million metric tons in 1978, the association forecast.

The association also forecast that mechanical pulp capacity for paper and paperboard will grow 3.4 percent annually in the period ending 1981. Previous capacity increases aren't available. U.S. capacity will climb 6.4 percent yearly, while Canadian capacity will increase at a lower 2 percent yearly rate, the forecast says.

North American sulphate paper grade pulp capacity will increase at a 2.3 percent yearly pace in the forecast period versus 2.1 percent historically, while Canadian capacity will move up 2.6 percent yearly versus 1.9 percent in the preceding five years, it said.