The Bank of Canada predicts we will avoid a recession -- but just barely -- and says growth will be slow and insignificant for the foreseeable future.

In its October Monetary Policy Report, the central bank said the global economic slowdown is having a sharp impact on Canada's economy.

"We're going to have sluggish growth for the next few quarters. I think that's the best description of it," Bank of Canada Governor Mark Carney told reporters on Thursday.

The report predicts a period of slow growth in the first quarter of next year with improved gains in 2009 and 2010.

Overall, the central bank projected average annual growth in real GDP of 0.6 per cent in both 2008 and 2009, and 3.4 per cent in 2010.

But Carney declined to use the word "recession." And unlike the U.S., he said, Canada's economy has not met the criteria to be described as such -- two successive quarters of negative growth -- and is not predicted to do so in the near future.

Later on CTV Newsnet's Mike Duffy Live, Carney stressed it was "extremely important" that Canadians understand the problems with the global economy originated beyond our borders.

"And the main solutions are going to be found outside of Canada as well - in the U.S., in Europe, in the U.K., principally," he said

Finance Minister Jim Flaherty summarized the bank's assessment as "near the line" of a recession.

'Plan of action'

Carney said the "good news" for Canada is that, over the course of the last two weeks since he and Flaherty attended the G7 meeting in Washington, there is a "plan of action that has been put in place; and there's real action that is taking place to address those problems outside of Canada."

He said included among the plans were "very large" public capital injections to banks in the U.S., Europe and the U.K. in order to bring their ratios -- the amount of cash the banks must have for every dollar they lend out -- up to Canadian levels.

The new report focuses on Canada's economic situation as related to its inflation-control strategy.

It points to the following three factors as having an impact on the Canadian economy and bringing it close to -- but not into -- recession:

The global financial crisis has strained financial markets. As a result, banks will need to reduce leverage, leading to restrained growth.

The global economy appears to be moving into a recession, led by the U.S. which is already in a recession.

Falling commodity prices

However, Carney said Canada's system is "sound" and its financial institutions are "well capitalized" and the economy has an assets-to-equity ratio that is among the best in the G7.

"That's why you're seeing hundreds of billions of dollars being put into the global banking system -- to get global banks to the levels Canadian banks are today," he said.

He said steps taken by the Bank of Canada, such as the reduced key interest rate, the government's actions and the reduced value of the loonie, which boosts the Canadian export market, have all helped protect the economy.

"We anticipated much of this -- not all of this, it certainly has gone further than we expected, which is why we acted aggressively earlier this year, why we acted aggressively over the course of the last two weeks," Carney said.

He added on Mike Duffy Live that, compared with the U.S., household balance sheets in Canada are in "good shape," as are corporate and government balance sheets.

On Tuesday, the Bank of Canada lowered its key interest rate by 25 basis points. On Oct. 8, less than two weeks earlier, the rate was lowered by 50 basis points, a move that was co-ordinated with other major central banks.

"That stimulus - because our financial system is working well - is going to flow through to the economy," Carney told Mike Duffy Live.