Canadian PM "in bubble" over economic woes - rival

By David Ljunggren

OTTAWA, Oct 4 (Reuters) - The leader of Canada's main opposition Liberal Party, trailing in the race to win an Oct. 14 election, on Saturday charged that Prime Minister Stephen Harper was in denial about the weakening economy.

Polls show that Harper's right-leaning Conservatives will retain power and could even turn their Parliamentary minority into a majority. The fallout from the economic turmoil in the United States -- by far Canada's largest trading partner -- has rapidly become the single most important election issue.

Harper insists the economy is sound and says if the Liberals win, their policies will plunge Canada into a recession. Liberal leader Stephane Dion said Harper had no plan to deal with the coming fallout.

"Mr. Harper is alone in believing that nothing is happening. He is in his bubble. But we don't need a prime minister in a bubble ... we are facing enormous economic challenges," Dion told a rally in Dieppe, New Brunswick.

He said that since 80 percent of Canadian exports go to the United States, the country inevitably would be hit.

"They are our clients. If we don't prepare ourselves, it would be foolish ... We don't need a government that is saying 'Don't worry, be happy,'" added Dion, who promises to hold a series of emergency meetings on the economy if elected.

An Ipsos-Reid poll for CanWest News on Saturday put the Conservatives at 37 percent, with the Liberals trailing far behind at just 23 percent. The left-leaning New Democrats were at 19 percent.

ELECTORAL SYSTEM

Under Canada's first-past-the-post electoral system, a party needs around 40 percent of the popular vote to win most of the 308 seats in Parliament. But if the center-left vote splits equally between the Liberals and the New Democrats, it could give the Conservatives a majority with less than 40 percent.

The Ipsos-Reid survey of 1,009 adults was conducted from Sept. 30 to Oct. 2 and is considered accurate to within 3.1 percentage points, 19 times out of 20.

Major Canadian newspapers struck a pessimistic tone on Saturday, running articles on the implications of the U.S. crisis under headlines such as "The gloom spreads north," "A harbinger of financial woe," and "Why contagion never stops at the border."

Randall Denley, a columnist for the Ottawa Citizen who usually tilts toward the Conservatives, said Harper's upbeat comments on the economy were based on outdated statistics.

"That's a bit like pointing to the house next door where flames are coming from the roof and saying it was OK back in July," he said in a front page piece.

Harper conceded on Saturday that domestic growth was slowing but repeated there was no need to worry about the Canadian financial and banking system.

"In the last few weeks we've seen further developments in the financial crisis in the United States. Canadians are obviously concerned about this but fortunately the economic fundamentals in Canada are different," he told reporters in Yarmouth, Nova Scotia.

"There's a lot of uncertainty out there. We don't need the government creating more. So this is the big choice, I think. Do we stick with the plan we've got, take additional steps and not panic, or do we panic, start hiking spending (and) taxes massively? ... That is not what you do at this time."

Harper won power in late January 2006, ending more than 12 years of Liberal rule.

(Editing by Vicki Allen)