OTTAWA ' Canadian and U.S. central bankers offered separate but similarly gloomy outlooks for the global and domestic economies today, with Canada's battered manufacturing and forestry sectors in line for more hard times.

As U.S. Federal Reserve chairman Ben Bernanke acknowledged that his country may already be in recession, Bank of Canada senior deputy governor Paul Jenkins told a London, Ont., business audience today that the spillover into Canada is unavoidable.

Although he used opaque bankerly language, the message from Jenkins was clear ' Canada's economy is being sideswiped by the U.S., and the slump in the manufacturing and forestry industries may be too deep to reverse in the near term.

"Adjustment is not easy," Jenkins said of the manufacturing sector. "When relative prices move to the extent that they have in recent years, markets are essentially telling us that there has been a fundamental change in the type of products that the rest of the world wants from Canada."

The hot products today are commodities ' oil, metals and grains ' that have resulted in a "rise in real incomes ... providing support for domestic demand in Canada."

Bernanke was blunter in his language, although he was reluctant to use the R-word that many other economists have already deployed in characterizing the U.S. economy.

"It now appears likely that gross domestic product will not grow much, if at all, over the first half of 2008 and could even contract slightly," Bernanke told members of Congress.

The two assessments from the central bankers come in advance of new global and country projections from the International Monetary Fund to be released next today, with rumours gathering that the IMF will drastically cut forecasts for both world and the U.S. growth to 3.7 per cent and 0.5 per cent respectively.

"That's in line with our projections," said TD Bank's chief economist Don Drummond. "I think this U.S. difficulty is going to continue longer than both the Federal Reserve and the Bank of Canada had earlier anticipated."

Drummond says he believes the U.S. economy will be flat throughout 2008 and will only begin gathering momentum in the second quarter of next year, something he said will continue to exert pressure on Canada's economy, particularly the export-oriented manufacturing sector.

Canada's manufacturing sector has lost over 100,000 last year, many in Ontario, and the bank deputy governor suggested there is no magic bullet ' not even a lower Canadian dollar ' that will bring them back, or even stop the bleeding.

In his analysis, the steep acceleration of the Canadian dollar has played only a minor role in the sector's woes.

The marked slowdown of the U.S. economy and crashing housing market has hit the auto industry and forestry exports like lumber, doors, windows and building materials hard, he said.

"But these and other industries are feeling the effects of strong structural forces," he added. "Clearly, competition from emerging-market countries is one of those forces."

Jenkins pointed to the example of London, where he was speaking, as a forerunner of what may happen throughout the sector. Twenty-years ago, manufacturing accounted for 20 per cent of employment in the southwestern Ontario city, but now has shrunk to 14 per cent. Yet London has prospered because of growth in financial, business, and professional services, and in transportation and warehousing.

"The result for London over this period has been rising employment and rising real incomes," he said.

Scotiabank economist Karen Cordes said she believes the Bank of Canada has properly described the global forces at work in Canada's economy, saying that the country must move from low value manufacturing to higher value, which means a more sophisticated, less labour-intensive sector.

"There are shifts going on and you can't ignore them," she said.

Drummond said that would mean fewer jobs, but a more productive manufacturing sector that can compete with the world.

In dealing with the anticipated slowdown, Jenkins repeated the bank's assessment that more monetary stimulus may be needed, pointing to an interest rate cut on April 22. Economists appear to be evenly divided whether that reduction will be 25 basis points or half-a-percentage point, matching last month's deep cut.

Unlike in many other countries, the Bank of Canada has a clear road to cut rates because inflation is well in check. Total inflation is currently 1.8 per cent and the core index stands at 1.5 per cent, well below the bank's two-per-cent target.

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