The U.S. economy will begin to grow again this year, but the pace of recovery is expected to be tepid, the Conference Board of Canada said in new report issued Wednesday.

U.S. gross domestic product is projected to shrink by 2.5 per cent in 2009, the research group said.

Pointing to modest signs of a rebound in the housing sector, along with the beginning of some stabilization in household spending, the Conference Board said real GDP is expected to grow by a slow 1.8 per cent in 2010.

"Recent indicators suggest that the severe recession gripping the U.S. economy since late 2007 is slowly winding down,” said Kip Beckman, a principal research associate at the Conference Board

“Canada was in a better position going into the recession and will post a comparatively stronger rebound in 2010. But the deep hole that the U.S. economy dug for itself means that a full recovery from the current recession will take several years."

Spending restrained

The Conference Board expects U.S. consumer spending will be restrained while Americans cope with weak labour markets and huge losses in wealth, and try to rebuild their savings.

A sluggish rebound in the U.S. economy will have a spillover effect on Canada. The Conference Board projects real GDP growth in Canada of 2.7 per cent for 2010.

"This relatively modest growth coming out of the recession is due primarily to the sluggish recovery in U.S. consumer spending over the next few years," the research group said.

On Tuesday, the Bank of Canada said it expects the Canadian economy to contract by 2.3 per cent this year, a slight improvement from the three per cent contraction it forecast in April.

For 2010, the central bank is projecting economic growth will hit three per cent, an improvement from April's outlook of 2.5 per cent growth. The bank did moderate its 2011 outlook to 3.5 per cent from its April forecast of 4.7 per cent growth.