A recession is unlikely, says research firm Global Insight. The firm came to that conclusion after offering a couple of different scenarios for Canadian economic growth.

The firm considers both an optimistic and a pessimistic scenario for the Canadian economy, largely tied to how dramatically the U.S. economy slows.

“The shape of the U.S. economy after the sizable Fed tightening is the main concern of policy makers and business leaders in Canada,” it says. “Indications from the housing market suggest a greater slowdown in sales and construction stateside than many had anticipated. Meanwhile, inflation remains above the Fed’s comfort zone, lending a tightening bias to monetary policy.”

Global Insight has a relatively bearish forecast for the U.S. economy, calling for GDP growth of somewhat above 2% in 2007. Some forecasters, however, expect growth closer to 3%, in part due to the beneficial influence of lower oil prices.

In the pessimistic scenario for Canada, it assumes the landing of the U.S. housing market is much harder than even in its baseline forecast. In the optimistic scenario, lower inflation and favorable productivity growth propel the American economy at a pace of slightly more than 3% in 2007.

It concludes that even in the pessimistic case, a dramatic 27% decline in U.S. housing starts to 1.3 million units in 2007, would not by itself be sufficient to cause a U.S., let alone a Canadian, recession — even if the Bank of Canada failed to cut rates. The assumed hard landing in U.S. residential construction would cut Canada’s GDP growth to 2.1% in 2007, from 2.6% in Global Insight’s base case.

In the optimistic scenario, stronger U.S. growth translates into faster Canadian exports, which rise 1.7% next year. In turn, Canadian GDP expands 2.8%. Canada’s growth bottoms out at 2.6% in the fourth quarter of this year and the first quarter of 2007, picking up to 3.5% by late next year.