On the heels of its upgraded forecast for U.S. GDP growth next year, BMO Capital Markets has also bumped up its Canadian call, as it sees a brighter 2011 ahead.

On Wendesday, BMO raised its U.S. growth forecast for 2011 to 3.0%, citing the boost it now sees the economy getting from both the U.S. Federal Reserve Board’s latest round of quantitative easing, and the fiscal stimulus provided by various tax cut and unemployment benefit extensions.

“By extension, Canadian growth prospects have brightened as well, leading to an upgrade of our forecast for Canada’s economy to grow around 2.7% in 2011,” BMO said Thursday in a research note. It was previously calling for 2.4% growth in 2011.

BMO also offered a host of other predictions for the year ahead. In terms of interest rates, BMO predicts that the Fed will remain on hold throughout 2011, while the Bank of Canada will likely start raising rates around the middle of the year.

In terms of financial assets, BMO says that, “The three-decade bull market in U.S. Treasuries will finally end and stocks will perform well.”

On the currency front, BMO predicts that “the U.S. dollar will hold its own next year, weakening only slightly against a basket of major currencies”, while the resumption of rate hikes in Canada will also provide a lift to the Canadian dollar.

Commodity prices will also “rise solidly”, BMO says, “despite moderate growth in the G-7 countries, as the emerging market recovery forges ahead at a robust pace.” Indeed, it predicts that oil could test the $100/barrel threshold for the first time since the financial crisis emerged in late 2008. This is a positive for the Canadian economy, it adds.

Nevertheless, BMO doesn’t foresee inflation worries, suggesting that inflation will be barely above 1%. “Housing will slowly add to growth in the U.S. for the first time in six years,” it says, and should stabilize in Canada. While on employment front, it sees the U.S. jobless rate finally edging downward to 9%, with Canada’s rate also trending lower as the year progresses.

BMO also warns that “trade tensions with China could heat up as the U.S. trade deficit continues to widen and the Chinese currency appreciates only moderately.”

IE