OTTAWA — The Canadian economy is shrinking faster than at any time since the Great Depression, says a new report, amid signs that the critical U.S. economy is in dire need of rescue.

Merrill Lynch offered up the scariest numbers to date on the Canadian economy Wednesday, projecting it will contract by a 9.1 per cent annualized rate this quarter and by three per cent in total during 2009.

Chief economist David Wolf — regarded as a bear among private sector analysts — unveiled his new forecast after Statistics Canada reported wholesale sales in general, and the automotive sector in particular, hit the wall in January, crashing 4.2 per cent and 23 per cent respectively.

The prognosis is apparently no better in south of the border.

U.S. Federal Reserve chairman Ben Bernanke, who in a television interview aired Sunday said he saw a return to growth later this year, felt the need to resort to so-called quantitative easing to boost credit in the stalled economy.

"The printing presses will work overtime at the Fed until signs of a sustainable recovery appear," said BMO economist Sal Guatieri, after the U.S. central bank announced Wednesday it would buy up $300 billion in long-term government Treasury bills.

Guatieri added the move ups the odds that Bank of Canada governor Mark Carney, who has said he would outline options of quantitative easing next month, will follow suit in some form.

The developments seemed to confirm economists’ fears about the dreary winter of 2009 and then some.

The Bank of Montreal also signalled that it now believes the fall to the bottom was faster than its most recent -6.2 per cent estimate, although it gave no new estimate.

The key unknown is whether the developments also mean that the economy will keep falling, albeit at a slower pace, or whether the few encouraging signals that have appeared in the past few weeks portend that the bottom, while deep, is near.

Retail sales have shown surprising resilience and the main North American stock exchanges again posted gains Wednesday, albeit it took Bernanke to rescue what looked like a down session.

Answering questions in Toronto, Prime Minister Stephen Harper acknowledged the difficulties, but was not ready to abandon hope of a quick or solid turnaround.

"The reality is this: things are very tough," he said. "We know that. But Canadians should not lose sight of the fact that we remain in a relatively good position compared to other countries."

And he noted that "forecasts have been so all over the map" and have changed quickly.

Harper, an economist by training, said Canada’s fundamentals are strong but acknowledged the economy wouldn’t recover until the U.S. and the world fixes their financial markets, a subject he said would be tackled at the upcoming meeting of G20 countries.

"The Canadian economy cannot turn the corner on recession until we see a fixing or significant improvement in the American financial system, and the global financial system more generally."

But Wolf said sound fundamentals can’t save Canada from the global recession. Curiously, Canada may suffer worst than others, he said.

"We are in a period of unprecedented co-ordinated global slump. And while Canada has its structural merits, the fact of the matter is Canada is a small, open, commodity-producing economy that is highly sensitive to global economic conditions."

However Wolf still sees only three quarters of contraction, with the economy starting to pick up slightly in the third quarter and growing tamely by 2.2 per cent next year.

Merrill Lynch’s forecast is now for a total start-to-end contraction of 3.7 per cent, harsher than the 1990-91 slump (-3.4 per cent), but milder than the early ‘80s downturn, which saw the economy retreat 4.9 per cent.

But it won’t feel like growth because of the depth of the pit the economy has dug and the 600,000 jobs that will have vanished. In fact, the economy won’t return to 2008 levels until well into 2011 and it may take much longer to return to full employment, he said.