The Canadian economy will outperform all industrialized nations next year, and Canadian investors are also likely to outperform their international peers, a new report for CIBC World Markets Inc. suggests.

The bank’s newest economic outlook calls for the Canadian economy to grow by 2% in 2010. This compares with U.S. real GDP growth projected at 1.5% next year. The report notes that the Canadian economy is being bolstered by government stimulus spending, a sound financial system, and a household sector much more resilient than others abroad.

With slow growth abroad, however, CIBC economists warn that Canadian GDP growth will be hampered by weak export markets. “Canada could be waiting another year for truly robust growth to return,” says economist Avery Shenfeld.

Still, he notes that Canadian investors in both stocks and bonds could outperform relative to their U.S. peers in 2010. In terms of bonds, he points out that the Canadian money market is still pricing in some odds that the Bank of Canada will raise interest rates ahead of its conditional commitment to stand pat until after mid-2010. However, Shenfeld expects the central bank to wait even longer than predicted — until early 2011 — to hike rates.

“That won’t prevent bonds from selling off in 2010 as rate hikes grow nearer and the recovery ages, but it could allow two-year Canadas to outperform Treasuries that have already priced in a more dovish Fed trajectory,” says Shenfeld.

In terms of equities, Shenfeld says stronger economic fundamentals in Canada could help stocks in this country outperform those south of the border.

“Canadian equities levered to domestic demand — including those in retailing and related real estate — should fare better than their counterparts stateside, given the household sector’s much less battered state,” he says.

But Shenfeld warns that as economic growth remains weak, equity investors will have to be patient in terms of seeing a robust recovery in earnings. He expects metals producers to benefit from recovering demand from Asia, but he is less bullish on the near-term performance of energy stocks, since energy prices could be hit with the overhang of natural gas inventories and the potential for OPEC to boost production levels.

Manufacturing earnings will also be pinched by the stronger loonie, Shenfeld notes.