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Canada slid into a deep recession late in 2008, as the economy contracted at an annualized rate of 3.4 per cent in the fourth quarter of the year, Statistics Canada reported Monday.

That is the biggest decline since the recession of 1991 and sparked a sharp drop on the markets. At the sound of the closing bell:

• Toronto's S&P/TSX composite index dropped 435.51 points, or 5.36 per cent, to 7,687.51, its lowest point since the fall of 2003.
• Wall Street's Dow Jones industrial average fell 299.64 points, or 4.25 per cent, to 6,763.29, plunging below 7,000 for the first time in more than 11 years.

Economists have blamed the slumping U.S. market as the primary reason for Canada's sliding numbers.

"The United States has some pretty major problems, and by virtue of Canada's relation as a big trading partner, that hits Canada pretty hard," Eric Lascelles, an economist with TD Securities, told Â鶹ӰÊÓ.

The Statistics Canada report also said that Canada's gross domestic product slipped by 0.8 per cent in the fourth quarter of 2008, with the decline increasing progressively with each month.

"Economists say the worst thing about it isn't how much (the economy) contracted, but the fact that December was so much worse than November -- in other words, we're not bottoming out," BNN's Amanda Lang told Â鶹ӰÊÓnet.

"But we are still much better off than other areas, including folks to the south. We just saw last week that their economy, in the same period, almost shrank twice as much."

According to Jeff Rubin, CIBC's chief economist, the recent drops in exports to the U.S. could become the new paradigm.

"A big part of that decline was a 50 per cent reduction in auto exports to the United States," he said. "Those kinds of declines may well become permanent."

Rubin noted that the Detroit automakers may slash another 200,000 jobs and close half of their manufacturing plants over the next five years.

Political fallout

The government's handling of the economy during this decline was a topic of debate in the House of Commons on Monday.

Liberal finance critic John McCallum said the prime minister had inaccurately read the status of the economy "on the eve of the biggest contraction of the Canadian economy in almost 20 years" last fall, and asked if the prime minister would apologize to Canadians as a result.

In response, Prime Minister Stephen Harper said that the Canadian economy had fared much better than the U.S., European and Japanese economies during the same period, and that "our economy remains in a position of strength."

The GDP decline

The GDP decline was largely due to slowing exports, capital investments and personal spending -- all symptoms of the current global recession.

While the GDP dropped in October, November and December, the decline was sharpest in December.

"The economy deteriorated at a very rapid rate at that point. In that one month we fell by one per cent. That's a huge one-month decline for any economy," said BNN's Linda Sims.

She told Â鶹ӰÊÓnet that the losses were "across the board" with the only growth in the economy observed in the public sector.

"That means that if it wasn't a government agency or the government itself, it wasn't growing, it was in decline. That means the markets, consumer spending, manufacturing, imports, exports, you name it, were shrinking."

The fact that declines are being posted across all industries makes this one of the most widespread recessions in nearly two decades.

Exports of commodities and minerals to China are also down, further weakening Canada's numbers.

"So this is the first time where it's really starting to hit everywhere at the same time," Colin Cieszynski of CMC Markets Canada told Newsnet.

"So this in a lot of ways is the first major recession we've had in Canada since the early 90s, considering the last one seemed to be more concentrated in a few sectors, such as technology and telecom."

The numbers

Both domestic and foreign demand for goods declined, which means production fell by 2.4 per cent. All goods-producing sectors posted declines, except for agriculture, including:

• manufacturing, which fell by 4.7 per cent
• service-producing industries, which were down 0.4 per cent
• automotive products, which posted a 19 per cent decline in exports
• housing, which crumbled by 22.1 per cent

Statistics Canada also reported that imports to Canada fell faster than exports. However, the decline in the volume of products coming into the country, and going out, were the largest since 1982.

Despite the seemingly dismal numbers, overall in 2008, growth was still positive, with a 0.5 per cent increase to the nation's GDP.

And while Canada's fourth-quarter drop in GDP may sound dramatic, the decline is not as sharp as in the U.S., where a 6.2 per cent decline was registered.

The European Union reported an annualized decline of 5.9 per cent, Mexico's was 10.3 per cent and Japan experienced a massive 12.7 per cent plunge.

Derek Holt, Scotia Capital's vice president of economics, told the Canadian Press that the news will likely lead Bank of Canada governor Mark Carney to cut interest rates by half a point on Tuesday.

That would put Canada's overnight rate at 0.5 per cent. However, it is unclear if cutting interest rates would have the same effect as in healthier economic times.

With a report by CTV's Robert Fife and files from The Canadian Press