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

CIBC says Canadian exports to the U.S. are unlikely to pick up soon. (Rob Short/CBC)

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 new prediction was still less than the July forecast of three per cent put forward by Canada's central 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 by reducing demand for foreign products and services, experts warned.

Canada's exports into the United States, for example, fell 35 per cent in June 2009 compared to a year earlier.

Shenfeld said a recovery of personal expenditures to previous levels in the 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 subsequently was hiked to three per cent in its latest forecast.

Similarly in April, the CIBC predicted that the Canadian economy would grow by 1.5 per cent, boosting its forecast to two per cent in the most recent report.

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