Strong commodity prices will keep the Canadian economy from sliding into recession and help to boost the loonie to $1.05 US by year-end, a new forecast from CIBC World Markets says.

"The resilience of the resource markets, particularly, energy prices, heralds a new measure of economic independence for Canada," said chief economist Jeff Rubin, who paints a relatively optimistic picture of the country's economy over the next year or two.  

"The resource sector still enjoys booming economic conditions, and will continue to do so over the next four quarters, irrespective of the pace or timing of a U.S. recovery," he said.

CIBC forecasts that the energy sector will lead the TSX to a record high 16,200 in 2009 — an 18 per cent increase over its current level — with oil prices averaging $110 a barrel US.

Canada's GDP will grow by 1.6 per cent this year and 3.0 per cent in 2009, the forecast says. 

The outlook acknowledges that central Canada's trade-dependent manufacturing sector will not have an easy time of it — especially the auto sector — and that Ontario will come closer than any other province to recession.

That risk will prompt the Bank of Canada to cut interest rates by another three-quarters of a percentage point to 2.75 per cent by June, it says. The widening interest rate spread with the U.S. — along with robust energy prices — should be enough to propel the Canadian dollar as high as $1.05 US by the end of 2008, CIBC says. 

That stronger dollar forecast is very much at odds with recent ones from several other big banks. RBC Economics sees the loonie at around 91 cents US by the end of this year; TD Economics is looking for a year-end dollar to be worth 95 cents US; BMO expects a 97 cent US loonie.  

U.S. downturn to be brief and mild

CIBC's forecast for the U.S. economy isn't as rosy.

"America's economy has finally succumbed to the double blows of the worst housing downturn since the Great Depression and an unprecedented credit crunch," writes CIBC World Markets economist Meny Grauman.

But the U.S. downturn will be mild and brief, CIBC says. While it forecasts U.S. GDP will slow to just 0.9 per cent this year, it should rebound to 2.3 per cent in 2009.  

"The 2008 recession should only last two quarters as an unprecedented wave of monetary and fiscal intervention along with strong export demand help push economic growth back above trend towards the end of 2008."