Canada’s economy shrank at an annual rate of 3.4% in the fourth quarter of 2008, marking its worst downturn since the early 1990s, according to Statistics Canada. The federal agency also reported a 1% decline in gross domestic product (GDP) in December compared to the previous month. This contraction was the first quarterly drop since the 1991-92 recession.
The agency revised its third-quarter GDP growth from 1.3% to 0.9%. For the entire year, the economy grew just 0.5%, down from 2.7% in the previous year. Charmaine Buskas, senior economics strategist at TD Securities, noted that while the report could have been worse, it highlights the fundamental weakness of the Canadian economy.
Exports fell 4.7% in the fourth quarter, the sixth consecutive decline and the longest slide in over 60 years. Auto products accounted for nearly half of this drop. Imports also decreased by 6.4%, with auto products falling 16%. Personal spending fell 0.8%, the first decline since the fourth quarter of 1995.
The International Monetary Fund expects Canada’s economy to contract by 1.2% this year, worse than the 0.8% shrinkage projected by the government in its January budget. Finance Minister Jim Flaherty warned that economic activity would continue to decline but emphasized the need for stimulus to help Canadians.
The Bank of Canada, which will announce its latest interest-rate decision on Tuesday, had forecast a 2.3% fourth-quarter contraction. Most private-sector economists had revised their estimates downward, predicting a drop between 3.6% and 4.2%. The Bank of Canada is expected to cut its key lending rate by another 50 basis points to encourage spending and pull the country out of the downturn.