Canada to grow 2% in 2010: CIBC

Canada's economy will grow faster than initially predicted next year but won't recover as quickly as the Bank of Canadapredicted it would, according to a new CIBC report released Wednesday.

The Canadian Imperial Bank of Commerce said Canada's gross domestic product (GDP) will expand by two per cent in 2010.That is half a percentage point better than CIBC economists forecast back in April.

The CIBC's newprediction was still less than the July forecast of three per cent put forward by Canada'scentral bank.

"We are out of recessionary waters, but it won't be easy sailing for either the Canadian or U.S. economies over the next year and half," said Shenfeld in the bank's latest economic forecast.

Canadian advantage

During the recession, Canada has benefited from relatively stable housing prices,labour incomes that stay decently high and job losses that were less than in the United States, he said.

But, the appearance of frugal U.S. consumers facing lower net worth and the sudden necessity to save more could hurt Canada byreducing demand for foreign products and services, expertswarned.

Canada's exports into the United States, for example, fell 35 per centin June 2009 compared toa year earlier.

Shenfeld said a recovery of personal expendituresto previouslevels inthe U.S. appears unlikely.

"U.S. consumer spending will run out of steam when no longer backed by government largesse in tax cuts or vehicle subsidies, and that will spill over into Canadian exports," he wrote.

Rising numbers

CIBC's rise in its GDP prediction actually mirrored the improvement in how the Bank of Canada saw the Canadian economy.

Back in April, the central bank predicted Canada's 2010 GDP would expand by 2.5 per cent, which subsequentlywas hiked to three per cent inits latest forecast.

Similarly in April,the CIBCpredicted thattheCanadian economy would grow by 1.5 per cent, boosting itsforecast to two per cent in the most recent report.

For 2009, CIBC expects Canada's GDP to contract by 2.3 per cent.