While the U.S. and Canada are already in a recession, a slow recovery will be underway early in the New Year, with strong growth resuming in the latter part of 2002, CIBC economists predicted today.

Overall, CIBC expects the Canadian economy to expand by 1.4 % this year before accelerating modestly to 1.7% in 2002, with growth rising to at least 4% by the end of next year.

“Although we expect a recovery to start in the early part of 2002, it is likely to get off to a very slow start,” said CIBC’s chief economist Josh Mendelsohn. “However, it will gather momentum into the second half of the year.”

A number of factors are working in favour of enhanced growth, Mendelsohn said. “Both the U.S. Federal Reserve and the Bank of Canada have eased aggressively, oil prices are sharply lower and the American government is taking aggressive fiscal measures to boost demand.” He sees these factors taking hold as negative factors such as weak consumer confidence and excess industrial capacity begin to dissipate.

Canada is expected to perform more strongly than the U.S. both this year and next, as that nation’s industrial sector struggles to recover from an era of massive over-investment. The U.S. is forecast to report growth of only 1.1% in 2001 and 1.3% next year.

The Canadian dollar will appreciate to the 65 cent U.S level or even higher by the end of next year, CIBC says. “However, a more significant strengthening will have to wait until Canada starts to deal more effectively with the wide productivity gap with the U.S.”

Interest rates will also bounce back in both countries as growth strengthens. However, some further easing of short term rates is possible in both Canada and the U.S. in the next couple of months as the central banks seek to build insurance for an economic recovery later in the year.

Unemployment will lag the economy, jumping from an average of 7.1% this year to 7.7% in 2002.