Despite Prime Minister Stephen Harper's assurances that Canada's economy is in good shape to weather the financial tsunami coming from the south, economists say a downturn here is inevitable.
The only question is: how bad will it get? Merrill Lynch Canada economist David Wolf says he believes the aftershocks in Canada's housing and mortgage industries could be as severe a the U.S. meltdown that spawned the current crisis.
Few economists are as openly bleak as Wolf, but Scotia Capital's Derek Holt does think Canada is in real danger and likely headed for a mild recession in response to a much deeper one in the United States.
"A U.S. recession, that's a foregone conclusion," Holt predicted.
Holt said the current situation, in which the White House is prepared to provide US$700 billion to buy up mortgage-related securities from the private sector, can be equated to the U.S. Savings and Loan bailout implemented in the late 1980s.
At that time, Canada followed the U.S. into recession and is likely to do the same this time, Holt said.
Late Thursday, efforts to lash together the rescue plan broke apart, hours after key U.S. lawmakers had declared they had reached a deal.
U.S. Treasury Secretary Henry Paulson met with Congressional leaders into the night in efforts to revive or rework the proposal that the administration says must be quickly approved by Congress to stave off economic disaster.
Congressional leaders said Federal Reserve chairman Ben Bernanke might come to Capitol Hill, too, if enough progress was made.
With the situation evolving so rapidly, economists are hedging their bets more than usual about the prospects for the world economy and Canada.
The only constant in their forecasts is that they have been revising growth downward since the start of the year.
Global Insight's Dale Orr says his forecasting firm will likely shave Canada's growth forecast for 2008 from the current 0.8 per cent.
TD Bank, which had been among the most pessimistic among the big Canadian banks, Thursday downgraded Canadian growth forecast for the year to 0.7 per cent, from June's one-per-cent target.
TD also increased rates on several of its mortgages by about 0.35 per cent - a moderate change - although its one-year closed mortgage fell by 0.30 per cent.
Bank of Montreal (TSX:BMO) also announced a 0.35 per cent increase on mortgages with terms of three years or more.
Bank of Canada governor Mark Carney warned Thursday in a speech that the U.S. slowdown will be felt in Canada as well - particularly by producers of lumber, building materials and autos, much of which are exported south.
He also said other countries will have to help the U.S. efforts to right its housing and lending industries.
In a concession that not all is rosy in Canada's financial markets, although not as black as on Wall Street, the Bank of Canada announced late Thursday afternoon that it will inject $4 billion more liquidity into the system - on top $4 billion previously announced - to improve the chartered banks' capacity to make loans to Canadians.
"The bank will continue to provide additional term liquidity as long as conditions in financial markets warrant," the central bank's terse announcement stated.
With anxiety growing among Canadians, political leaders on the campaign trail jostled to position themselves to take advantage.
Prime Minister Stephen Harper chose to announce a new resolve to go after gas companies caught fixing prices with stiffer penalties, despite saying his is the "party that believes in free enterprise, free trade and free markets."
Liberal Leader Stephane Dion said he just wanted to go after the Tories for economic mismanagement and recited what he considered a litany of Tory sins on the economy. He concluded by asking Canadians, "Do you want more of this?"
