Canada fourth-quarter GDP slides most since 1991

Mon Mar 2, 2009 11:33am EST
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By Louise Egan

OTTAWA (Reuters) - Canada's economy shrank more in the fourth quarter of 2008 than at any time since 1991, confirming the country is now in recession, and reinforcing expectations of a central bank interest rate cut on Tuesday.

Statistics Canada said on Monday the economy contracted at an annualized rate of 3.4 percent in the quarter as the global financial crisis bit into exports and curtailed consumer and business spending.

It was the worst performance since the 5.9 percent contraction in the first quarter of 1991, which marked the end of the country's last recession.

Still, the result was slightly better than market expectations for a 3.6 percent downturn, giving the Canadian dollar a boost.

"The report officially marks a recession," said Sal Guatieri, senior economist at BMO Capital Markets.

"It's almost as bad as expected. Most areas of spending were down, outside of government," he said.

But the result was worse than the 2.3 percent decline projected by the Bank of Canada and market players expect the bank will see fit to chop another half point off its key interest rate on Tuesday to a record low of 0.5 percent.

"In our opinion, a 50-basis-point cut is still by far the most likely outcome tomorrow," said Eric Lascelles, chief economics and rates strategist at TD Securities.   Continued...

<p>Worker Nick Aphayvong prepares to install a battery into a Ford Flex on the assembly line at the company's Oakville Plant, June 3, 2008. REUTERS/Fred Thornhill</p>