OTTAWA - Statistics Canada made it official Friday: the Canadian economy has stumbled into a deep recession that is approaching the devastation occurring in the United States.

Canada's gross domestic product -- the broadest measure of economic health -- fell sharply in November surprising most economists with a 0.7 per cent retreat that was almost twice expectations.

That broadly matched the 3.8 per cent shrinkage reported in the U.S. for the fourth quarter of 2008, which might have been worse but for an unexpected buildup in inventories.

Bank of Montreal deputy chief economist Douglas Porter said the new numbers show that November was "a watershed" moment for the Canadian economy.

And while the original cause of the slowdown came from south of the border, Canada is now close to catching up in terms of the depth of the malaise. He expects Canada's GDP shrank about three per cent in the fourth quarter, not far from the U.S. decline reported Friday.

The Bank of Canada forecast recently that the economy will shrink even further during the first three months of this year -- down 4.8 per cent -- which is on par with expectations south of the border.

"We really can't differentiate much from the U.S. when so much of our economy is directly related to what we sell to the U.S," said Porter.

He added that while the Canadian economy has fallen more than even the most pessimistic forecast, it remains slightly better off than the U.S., particularly in the health of its banking sector and jobs market.

Still, the November figures show Canada is being hammered by the global financial crisis and loss of markets for exports in the United States and around the world.

Speaking from Davos, Switzerland, at the World Economic Forum meeting, Finance Minister Jim Flaherty acknowledged the severity of the Canadian and world slump.

"It is sombre," he said of the mood among global finance officials. "This is a serious and extraordinary time globally.

"There is still turbulence in global banking . . . so we're not through this by a long shot, this is going to be a difficult year."

The U.S. GDP decline was less than the 5.4 per cent contraction expected, but Scotia Capital economist Derek Holt cautioned that the reading included US$6.2 billion in inventory buildup -- or unsold production -- that added 1.3 per cent to the GDP number.

"The (inventory) gain is most assuredly undesired and waiting to be burned off in future quarters. Rising inventories will amplify the production cutbacks going into 2009," he pointed out.

Royal Bank economist Paul Ferley said the economic stimulus packages in the United States and Canada -- worth US$819 billion and $19 billion this year respectively -- as well as low interest rates will be instrumental in lifting both economies in the latter part of 2009.

However, there is still some doubt in the business community as to how effective Canada's stimulus will be.

An online poll of members by the Canadian Chamber of Commerce following Tuesday's budget found an equal three-way split between those who thought the stimulus would help, those who thought it wouldn't make a difference and those uncertain.

"The results tell me that while business leaders want to be optimistic about the future, they will await tangible results before giving a definite thumbs up to the budget," said Chamber president Perrin Beatty.

The November weakness in Canada was widespread and the battered manufacturing sector leading the rout, Statistics Canada said.

Factory activity fell 2.1 per cent, while construction -- hammered by the sudden reversal in Canada's housing market -- dropped 1.2 per cent.

As well, the agency said wholesale trade, real-estate agents and brokers, transportation, paper products, autos and parts, chemical products, energy, retail trade, finance and insurance all retreated in November.

The only bright spots were tourism-related industries, agriculture and the public sector.