The rebound underway in Canada's economy could slow significantly by the end of 2010, a new forecast from CIBC suggests.

The unprecedented stimulus measures implemented in late 2008 and throughout 2009 helped end the Canadian recession and will continue to drive growth in the first part of 2010, CIBC World Markets chief economist Avery Shenfeld said in a report released Thursday.

"No economic recovery goes in a straight line and the current one will be the most non-linear of them all," he said. "As in the U.S., many of the chief drivers of the Canadian recovery will run out of fuel by mid-year, and will give way to sub-par growth in the second half of the year."

The stock market could get a decent year’s return in the first six months, the report forecasts, before uncertainty settles in.

"That has the North American economy entering 2010 like a lion. But the fading benefits of these measures, and the lingering hangovers from the past two years’ turmoil, will see us exit like a lamb," Shenfeld said.

The bank is expecting 2.8 per cent growth for the year as a whole. But buried in that number is an expectation of a one per cent pace in the second half. And the bank slashed its forecast for 2011 by a full percentage point to 2.4 per cent.

Bank of Canada waiting to hike?

Shenfeld also expects the Bank of Canada will start to turn off the monetary taps sooner than its U.S. counterpart. "After each of the last two major North American slowdowns, the Bank of Canada hiked rates ahead of the Fed, only to have to reverse course when the economy disappointed," the report stated.

"Our upgraded first-half growth forecast will likely see something similar, with [Bank of Canada governor Mark] Carney hiking 75 basis points in the third quarter, only to go back on hold for at least a quarter facing a combination of Canadian dollar gains and weaker growth signals."

Shenfeld noted that Washington didn't hike interest rates until three years after the prior two recessions. He doesn't expect that Federal Reserve chairman Ben Bernanke will want to maintain near-zero rates for that long this time around, but he does not expect the U.S, central bank to budge until sometime in 2011.

"A double-dip recession now looks unlikely [but] what will be surprising is how swiftly growth downshifts when support from fiscal pump-priming and restocking vanishes in the second half," the CIBC report concludes.