The Canadian economy will outperform the U.S. economy in 2008, despite the loonie reaching a nearly a half-century high of $1.05 against the greenback, finds CIBC World Markets latest economic forecast.

“The loonie’s flight is far from over,” says Jeff Rubin, chief economist and chief strategist at CIBC World Markets. “By the end of next year, you’ll get as much as a nickel back when you trade your loonies for greenbacks, the biggest premium since 1960.”

The forecast finds that across a wide spectrum of assets, the tables have suddenly turned between the American and Canadian economies. Canadian real GDP growth is outpacing the U.S.; American housing prices continue to fall on mounting foreclosures while Canadian housing prices continue to rise due to a surging economy; and the resource-based S&P/TSX composite index is set to outperform the S&P 500 for the fourth straight year.

Rubin notes that in the past, weakness in the American economy would spill over the border in a hurry. But with the developing world now driving global resource demand, the links between the Canadian economy and the American market are being severed.

“Canadians are getting richer compared to their American neighbours, after having fallen so far behind during the IT-driven economy of the 1990s” says Rubin. “At the heart of this reversal of fortune is the huge shift in the global terms of trade over the last decade, which has seen economic value- added migrate from information technology back to resource rents under the ground.

“Nowhere is that shift more evident than when comparing soaring crude oil prices against stagnant or plunging technology prices,” Rubin says.

The CIBC World Markets economic forecast finds that rising resource rents are continuing to swell corporate earnings, personal income and government tax revenue in Canada. It notes that with consumer spending, business investment and government spending all well financed, the domestic economy will be firing on all cylinders.

“A much stronger domestic economy north of the border will in turn translate into divergent monetary policies in the two countries with the Federal Reserve Board following through with another 50 basis points of easing while the Bank of Canada remains on the sidelines,” adds Rubin. “With interest rate spreads turning against the greenback, and commodity prices buoyant, the Canadian dollar should climb to a five per cent premium against the U.S. dollar by the end of 2008.”

The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/foct07.pdf.