The OECD has lowered its outlook for Canada for 2008 and now predicts the national economy will expand at the second slowest pace in the industrialized world.

The Organization for Economic Co-operation and Development said today that Canada’s economy will expand by only 0.8% for the year, down from its previous prediction for annual growth of 1.2%.

Only Italy, which the international organization forecasts to grow by a feeble 0.5%, would perform worse than Canada among the G7 economies if the prediction holds.

The OECD, which released the new numbers in its interim economic update, said the global economy is plagued by the credit overhang from the housing slowdown in the United States and the other Western economies.

“The downturn in housing markets is still unfolding, with reduced credit supply likely adding to pressures,” the organization’s chief economist, Jorgen Elmeskov, said in an analysis accompanying the forecast.

As well, soaring oil prices, while moderating in recent months, still is boosting inflation in many countries higher.

In the forecast, the OECD cut its economic outlook for five other countries — Japan, Germany, Italy, the United Kingdom and France.

Only the United States, which the OECD expects to expand at a 1.8% clip for 2008, will grow faster this year compared with the Paris-based group’s earlier forecast.

In overall terms, the OECD predicted that the G7 countries will expand by 1.4% this year, unchanged by the organization’s initial projections.

In Canada’s case, the reduced forecast comes one day before the Bank of Canada’s interest rate decision.

Most economy watchers believe the country’s central bank will leave borrowing costs untouched at 3%. But a minority says the bank should actually stimulate the economy by cutting interest rates by a quarter of a percentage point.