Economists at TD Bank have boosted their prediction for Canada's economic growth this year to three per cent from 2.6 per cent.

In an analysis released Wednesday, TD said the economy has been doing better than it expected so far this year, with higher-than-expected demand for commodities, and a more optimistic outlook for Canada's biggest trading partner, the United States.

TD suggested that growth will be particularly prominent in the Prairies and Newfoundland and Labrador, helped by stronger financial positions from the governments in those regions, and strength in commodity prices.

The bank said its revision was based only on an improving view of what will happen over the first half of the year.

"Beyond the next six months, high personal indebtedness, flat housing markets, a lofty Canadian dollar, and waning fiscal stimulus are expected to act as headwinds on economic growth," it said.

Meanwhile, TD said its forecast for 2012 remains the same at 2.5 per cent.

Earlier this month, the Bank of Canada said that the economy grew by 3.3 per cent in the final quarter of last year — a full point higher than the central bank had projected.

Japan to have little effect

The bank said it expects the economy will create about 350,000 jobs this year, more than last year's total, with the unemployment rate dropping to 7.5 per cent by year's end.

The report foresaw few effects on the Canadian economy from the massive earthquake and tsunami that has rocked Japan, the world's third largest economy, and setting off a chain of events that raises the possibility of a nuclear catastrophe at one of its nuclear plants.

TD chief economist Craig Alexander said while there might be supply-chain disruptions in some sectors, particularly the auto sector, he noted that Japan represents only two per cent of Canadian exports.

"You don't want to minimize what's happening in Japan and if the worst fears come true then Japan's economy is going to do a whole lost worse," said Alexander.

"But the risks are risks, they aren't the most likely outcome. It's still the case that the economic climate in the world is quite good. For Canada, we're going to have moderate growth, low inflation, solid profit growth, low albeit rising interest rates ... this is actually a pretty benign economic environment."

As devastating as the disaster in Japan is in human terms, the macro-economic impacts are small since global supply chains will find substitute sources for output to replace the affected region, Alexander explained.

Longer term, Japan's need for materials to help in the reconstruction could help the Canadian economy, although the overall impact will also be small.

With files from The Canadian Press