By Kit R. Roane, contributorNovember 12, 2010: 10:41 AM ET
FORTUNE -- America may be on the ropes, but its neighbor to the North wants everybody to know that, in contrast, it's doing just fine.
Canada, once known mainly for its Mounties, maple leaves, and muscular peacekeeping presence, now can crow about how it managed to avoid the financial crisis that devastated many of the economies of the Western world. For instance, not one Canadian bank failed during the crash and only one reported a loss.
As David Rosenberg, economist for Gluskin Sheff, told Fortuneearlier this week, he couldn't "recall a time, ever, where on the fiscal, economic, or political basis, relative to the United States, the downside risks were as limited and upside potential so compelling in Canada as is the case today."
All of this rings true, for now at least. But Canada still faces some stiff odds if it plans to slip through the crisis with nary a scratch. CIBC recently reported that Canada was likely to see its economic recovery squeezed next year, with a still-overvalued loonie falling to 93 U.S. cents and growth rates averaging "no better than 2% over the next few quarters." Canada's economy, said CIBC, was shifting "into a new phase of greater uncertainty."
One problem is that it's hard not to catch a close neighbor's cold. Although bolstered by a heavy trade of natural resources, 75% of Canadian exports end up in the United States, so Canadian trade will likely suffer if American consumers don't begin spending again. "At the end of the day, the Canadian economy just can't fight the gravitational pull of sluggish U.S. activity. End of story," Doug Porter, deputy chief economist at BMO Capital Markets recently wrote.
A decelerating economy at home means the labor market (currently running at just under 8% unemployment) will probably soften further. Canadian household debt continues to rise and currently runs at about 144% of disposable income, comparable with rates in the US, although household debt is falling there. As with their American counterparts, debt-sodden Canadians could soon begin putting away those charge cards too.