January 30, 2009 / 5:14 PM / in 9 years

November GDP data signals deepening recession

OTTAWA (Reuters) - Canada's economy shrank more than expected in November as businesses across most sectors clipped back production, suggesting the recession that started in the fourth-quarter is steeper than expected.

The economy contracted 0.7 percent in the month, the biggest drop in five years, as feeble global demand forced cuts and layoffs in manufacturing, construction, wholesale and real estate industries, Statistics Canada said on Friday.

In the worst year-over-year performance since August 1991, the economy shrank 0.8 percent compared with November 2007. The Canadian dollar strengthened slightly after the data

Economists, surprised by the swift deterioration from a 0.1 percent decline in October, now expect the fourth-quarter contraction of close to 3 percent. That compares with the Bank of Canada's latest projection of a 2.3 percent decline.

"The prognosis for fourth quarter GDP is not looking particularly good," said Charmaine Buskas, senior economics strategist for TD Securities.

"The decline in economic activity has been increasingly broad based and suggests that recession's grip on the Canadian economy is indeed, strong," she said.

Analysts in a Reuters poll had called for a 0.4 percent decline.

The Canadian data came at the same time the United States reported its economy shrank at its fastest pace in nearly 27 years in the fourth quarter. GDP plummeted at a 3.8 percent annual rate.

Canada appears headed in the same direction, said Doug Porter, deputy chief economist at BMO Capital Markets.

"After largely skating above the fray for a spell, the economy clearly reached a breaking point late last year," he said.

"And while many indicators continue to hold up relatively better than in the U.S., the final tally for real GDP growth in Q4 will not be so very different between the two countries," he said.

Canada's recovery will also depend on the U.S. recovery because of its reliance on U.S. demand for its exports.

Manufacturing activity slid 2.1 percent amid heavy layoffs and production cuts in the auto industry, primary metals, chemicals and paper products.

As the housing market stalls, construction fell 1.2 percent in November and real estate agents and brokers reported a 12.8 percent decline in their business.

Weak demand for machinery and equipment knocked down wholesale trade by 3.1 percent and declining commodity prices caused a 0.5 percent contraction in the energy sector.

Retail sales also fell 0.5 percent as consumer confidence in November fell to a 26-year low.

Reporting by Louise Egan; Editing by Frank McGurty

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