Canada is safe from recession, even as the U.S. economic outlook gets bleaker, said Global Insight economists today.

A robust labour market, a surprisingly strong housing market and slow and steady inflation are among the factors keeping Canada in a relatively strong position compared with other developing countries, said Dale Orr, managing director of Canadian macro services at Global Insight, during a conference call this morning.

But that’s not to say things are looking great north of the border. “While we don’t have a recession, over the year going forward, including the third quarter of last year, total growth in Canada is not much stronger than it is in the U.S.,” said Orr. He points to the U.S. government’s economic stimulus package and fiscal policy, which he says will help pull U.S. GDP growth up to match Canada’s in the last half of this year.

Global Insight is expecting about 1.6% GDP growth in Canada for the year, but notes that this expansion is uneven across the provinces, ranging from 3% for Alberta’s hot energy economy, to about 1% for Ontario, which relies heavily on U.S. exports.

Because the current downturn in the U.S. is so widespread, now well beyond the crumbling housing market and into employment and consumer spending, Canada is feeling the pullback and will continue to do so throughout the year, said Global Insight. Nigel Gault, chief U.S. economist at the research firm, said the U.S. is “parsing on some of its downturn to the rest of the world, including Canada through strong exports from the U.S. and weak demand for imports into the U.S.”

Data released today shows the international trade deficit in the U.S. widened to US$58.2 billion in January, from US$57.9 billion in the previous month. TD Securities senior economics strategist Charmaine Buskas says trade is one of the few sources of support for the U.S. economy during these troubled times. “Though it will be unable to fully offset the troubles with the consumer, trade will continue to key off the weak dollar and as long as global demand remains reasonably resilient,” she wrote in a note to clients. “It will prove to be one modest positive in an otherwise bleak outlook.”

The outlook Gault provided today is indeed bleak. He notes falling employment, decreases in real wages, tumbling home values, diminishing stock market values and tighter credit conditions are all weighing heavily on consumer sentiment. As well, he said, U.S. homeowners now have more debt wrapped up in their homes than they do equity, and surging energy prices are wiping out wage gains. He says the U.S. Federal Reserve is powerless to stop the downward spiral. “Unfortunately, we think it is too late and the problems are too big for the policy makers to be able to prevent recession,” he said, although its moves are important to stem the tide, he added.

Earlier today, the Fed extended its temporary lending program to add more liquidity to global financial markets. It said it plans to lend up to US$200 billion of Treasury securities for 28 days to primary dealers in the bond market to push some cash into markets.

Gault expects U.S. GDP growth to be negative for both Q1 and Q2 of this year and said consumption growth will fall short of income growth this year. The Bush administration’s fiscal stimulus package will pull GDP growth up over 2% by mid-year, but Gault warns that this boost will be temporary and the economy will “pay for it later.”

As well, Global Insight is forecasting for oil prices in the US$85 dollar range by the end of the year. “We don’t see the price of oil holding up where it is and probably not gold [either], said Orr. He added that these weakening commodity prices will push the Canadian dollar down to around the US97¢ mark by the end of this year.

“2008 will be our weakest year in quite a few years, but we see us picking up to just over 2% [growth] in 2009,” Orr concluded.