The U.S. economy will see a slowdown, but it should avoid a recession, says Moody’s Investors Service’s chief economist.

Moody’s analysts gathered in Toronto yesterday for their annual corporate finance conference, which focused on the outlook for North American credit quality. They said that strong global economic growth, relatively low interest rates and ample liquidity in the market combined to contribute to the current benign credit environment.

John Lonski, Moody’s chief economist commented, “The current economic outlook for North America is characterized by subpar growth as compared with above-trend global economic growth. The slowing of the U.S. and Canadian economies should help ward off the build-up of speculative excess and pare inflationary pressures.”

“The biggest challenge currently facing the North American economies is persistent home price deflation,” Lonski added. “We find that underlying demand for housing in the U.S. still has largely withstood the subprime mortgage crisis. However, the stabilization of home sales in the U.S. still requires the setting of market-clearing home prices that often are well under their peaks of 2005. Partly because of the healthy state of corporate finances, the U.S.’ current slowdown ought not to degenerate into a recession.”

“North America is currently in a benign credit environment; however, credit quality has begun to weaken and North American corporates are notably shifting down the rating scale. We are closely monitoring industries where we see enhanced credit risk such as home building, U.S. auto manufacturers and suppliers, and newspaper publishers,” said Daniel Curry, group managing director. “The three industries with the highest percentage of positive outlooks include: environmental services; pharmaceutical; and aerospace and defense.”