Canada's economy shrunk by 3.4 per cent in the fourth quarter from the same period a year before. That compares with a 6.2 per cent decline in the U.S. economy during the same period, a 5.9 per cent drop in the European Union and a 12.7 per cent plunge in Japan.

Canada's gross domestic product declined 0.8 per cent from the previous quarter, weakening progressively each month for the biggest drop since the recession of 1991. Statistics Canada reports declines in exports, capital investment and personal expenditures all contributed to the economic contraction.

The agency says the GDP declined one per cent in December from the month previous. GDP growth for the year was positive at 0.5 per cent, a sharp deceleration from 2.7 per cent in 2007.

The news comes as the Bank of Canada prepares for a half-point interest-rate cut Tuesday, taking the key rate to a record low of 0.5 per cent.

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