If Canadians think the economy in 2008 will show an improvement over 2007, they’re wrong, according to Don Drummond, chief economist at TD Bank Financial Group.

This and other forecasts were heard over breakfast this morning at the Economic Club of Canada’s Outlook 2008, an annual gathering of the country’s top economists, held at the Hilton Hotel in Toronto. The lead economists from each of the five big banks tackled a specific section of the economy and laid their early-in-the-year predictions on the table for a sold-out crowd.

The morning got off to a rather gloomy start when Michael Marzolini, chairman of Pollara Inc., revealed the results of his firm’s annual poll on Canadians’ attitudes toward the economy. A whopping 61% believe inflation will rise and that same percentage believes the U.S. economy will continue to weaken, while 22% feel we are in the midst of a mild recession. However, a full 65% are of the opinion that Canada is in a period of moderate growth. “Collectively we are doing well, but individually we are not,” said Marzolini.

These results prompted Drummond, in characteristically frank fashion, to comment that things are not going to improve in the coming year. He went on to discuss the likelihood of the Bank of Canada changing its inflation rate targets –when pressed, he said he sees a 50% chance that the central bank will drop it’s targets 0.5% to 1.5%.

Sherry Cooper, chief economist at BMO Capital Markets took on the issue of the U.S. economy. She sees the first half of this year being quite rough south of the border — with growth less than 1% — but that the rebound will begin in the second half of the year. “All in, it will be a significantly weaker year than we saw in 2007 and the spillover effects to Canada, Europe and the developing world could be immense,” she said. “The financial crisis is, in my view, the wild card. No one knows where all this toxic waste of bonds are buried and so we’re going to see many negative surprises.”

In contrast, Avery Shenfield, senior economist at CIBC World Markets, says a doom and gloom future is not a certainty when it comes to fixed-income markets. “It may well end up being that all of the toxic waste in the bond market doesn’t end up being that toxic after all,” he says. “It may not end up being as bad as financial markets are now assuming.”

Beyond North American borders, Warren Jestin, chief economist at Bank of Nova Scotia, sees economic growth in China slowing down. “But let’s put that in perspective,” he joked. “Slowing down to 10% or 10.5% growth.” He points to the enormous amount of financial assets that is being built up in both China and Russia. “That money is going to find its way out,” he said. “I think you’re going to see a repositioning of those assets to diminish the importance of the U.S. part of the portfolio.”

And back on the home front, strains on manufacturing are expected to continue, commodity prices will soften — but not be soft –and the loonie will end the year at just over 90¢, according to Craig Wright, chief economist at RBC Financial. “Our view on growth is: first half weakness in the U.S. and second half, hopefully, a recovery,” he said. “And that should provide some better cyclical lift.”

In terms of advice, Jestin counselled the business community to remain cautious when it comes to currency forecasts. “Volatility is here to stay,” he said. “Don’t expect a 90¢ currency to come along and skate you onside.”