The outlook for the Canadian economy this year has deteriorated, and it now appears Canada’s growth in 2008 will be significantly weaker than the United States and most other G-7 countries, according to economic research firm, Global Insight Inc.

Global Insight has significantly lowered its forecast for Canada’s economic growth for 2008, from March’s forecast of 1.6% down to just 1.2%. “There is no one particular reason for this month’s weaker growth forecast,” it says, “Overall, however, Canada’s economic indicators have turned downward since March.”

“Most of the decline in the forecast for economic growth for 2008 will be in consumer spending. Much more will be spent on gasoline in nominal (but not in real) terms, robbing the discretionary categories of consumer spending. Investment, both residential and business, now also seems on a slightly weaker path for 2008. Government spending will be slightly lower than earlier expected,” it explains.

Meanwhile, the outlook for the U.S. economy has brightened a bit since March, so Canada cannot blame a deteriorating U.S. economy for the lowering of its 2008 growth prospects, Global Insight adds. Not only will Canada’s growth likely be worse than the U.S. this year, it will be one of the weakest in the G-7, the firm says, only Italy is expected to be worse off.

Moreover, it notes that, “the Bank of Canada, while forecasting even slightly lower growth for this year (1.0%) than Global Insight (1.2%), tells us not to expect it to stimulate the economy with lower interest rates anytime soon”.

“Optimists who seek some relief from the depressing forecast of 2008 can look ahead to the latter part of 2009,” the firm says. “Global Insight, along with most private sector forecasters, expects the Canadian economy to be moving at about a 2.5% pace at that point, while the Bank of Canada is considerably more optimistic, at 3.0%. Most forecasters expect growth in the United States to take a dive late this year and early next year after the fiscal stimulus package has run its course. Growth in 2009 is therefore now expected to be stronger in Canada than in the United States.”

“We conclude, therefore, that while Canada is now in a much rougher spot than expected earlier this year, there appears to be light at the end of the tunnel, with a much improved performance by late next year,” it concludes.