OTTAWA -- Canada's in-demand commodities have given it a new measure of independence and enable it to sit out the U.S. recession, says an economic outlook from CIBC World Markets.
The report released Monday said America will slide into a recession in the first half of this year as a consequence of the worst housing slump since the Great Depression and tight money.
But while Canada is not immune to the shock, it will be able to ride out the recession even more impressively than it overcame the high-tech slump of 2001.
"Certainly there are still parts of the Canadian economy that move very closely to the cyclical rhythms of its much larger trading partner, but the resilience of the resource markets, particularly energy prices, heralds a new measure of economic independence for Canada,'' writes chief economist Jeff Rubin.
"For Canada, the diminished importance of the American economy to global commodity demand has meant downside protection for its resource rents against a U.S. economic downturn.''
The CIBC investment banking division predicts that Canada's economy will slow sharply from last year's 2.7 per cent advance to 1.6 per cent, but will rebound strongly to three per cent growth in 2009.
And it says the Canadian dollar, which closely tracks commodity prices, will stay strong and finish the year at about $1.05 US.
The report paints a rosier picture of Canada's prospects than last week's International Monetary Fund outlook, which predicted the country's growth would slump to 1.3 per cent this year and next.
The CIBC World Markets report says the boom from energy and metal prices has benefited the West in particular but has had a pronounced impact on Canada's economy overall -- creating wealth, adding to corporate profits and hiking government revenues to fund infrastructure spending.
"With resource prices still heading higher, domestic spending has plenty of fuel to give Canada the edge over U.S. growth,'' concludes the report.
Still, Ontario and particularly its auto and auto parts industries will have another tough year in 2008, the CIBC says.
"The structural change associated with living with a strong currency has a long way to run,'' says senior economist Avery Shenfeld, adding that "we could see years of slow bleeding in factory jobs and activity, even after the U.S. recession ends.''
This will mean Ontario, which exports a significant portion of its manufactured goods to the U.S., will come closest to a recession this year, says the report.
The report also forecasts that with inflation in check, the Bank of Canada will chop interest rates another three-quarters of a percentage point this year, taking the overnight rate to 2.75 per cent. Lower rates keep downward pressure on the dollar and encourage businesses and individuals to borrow and invest.
But Canada will also feel the pain from world escalating food prices and by year's end, the CIBC report says, warning that the inflation rate could hit three per cent.
Overall, however, it says Canada's economy is in good shape and would actually be experiencing a major boom if not for the U.S. slowdown.