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

The Organisation for Economic Co-operation and Development said Tuesday Canada's economy will expand by only 0.8 per cent for the year, down from its previous prediction for annual growth of 1.2 per cent.

Only Italy, which the international organization forecasts to grow by a feeble 0.5 per cent, 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 are boosting inflation in many countries higher.

Canada was not the only country seeing its growth prospects dimming in the OECD's most recent numbers.

In fact, five countries — Japan, Germany, Italy, the United Kingdom and France — all saw their economic growth rates cut as well.

Only the United States, which the OECD expects to expand at a 1.8 per cent 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 per cent 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 three per cent. But a minority says the bank should actually stimulate the economy by cutting interest rates by a quarter of a percentage point.

However, the OECD's new forecast is unlikely to change anyone's mind at the bank, economists say.

Recent figures published by Statistics Canada already indicated an economy edging towards a recession. The statistical agency said the national economy grew by only 0.3 per cent in the second quarter of the year.

As well, Stats Canada said the economy shrank by 0.8 in the first three months of the year, compared with its initial estimate of a drop in gross domestic product by 0.3 per cent.

Such a revision by Statistics Canada is not unusual. Trade data, which can shift a country's overall growth rate, often comes in later than do the figures on domestic demand.