Canadian economic activity remained “essentially unchanged” in November after edging up 0.1% in October and by 1.2% in September, Statistics Canada reported Friday. For the first 11 months of 2003, GDP was up 1.8% over the same period in 2002.

“Production in the energy sector advanced 1.8%, the strongest month since February 2001, reflecting higher production and exploration of natural gas,” Statistics Canada said.

Colder-than-normal temperatures helped boost the output of electricity generators and natural gas distributors, the federal government agency said.

A sharp pullback in diamond production and lower sales of new motor vehicle sales weighed on growth.

The manufacturing sector maintained its production from October despite the strengthening Canadian dollar. From January to November, the Canadian dollar rose 19% against the U.S. dollar. Manufacturing output for the same time frame dipped 0.6%.

“Following a powerful recovery in September from the body blow suffered by August’s Ontario power blackout, Canada’s economy has been stuck in the mud since, as confirmed by this morning’s report on real gross domestic product for November,” TD Bank comments. “Moreover, November’s soft showing can not be blamed fully on the drag exerted by the Canadian dollar on export-geared industries such as manufacturing — activity in the more domestic-driven service side also stalled in the month.”

Bank of Montreal points out that there were a few areas of strength in the November GDP report. “Amongst goods-producing industries, utilities, boosted by colder-than-usual weather in Western Canada, rose 2.6% and a still-hot housing market fuelled a 0.3% gain in construction. Within the service sector, education, health, administration and government all posted gains. As well, transportation and warehousing was up a sharp 0.9%, as the stronger Canadian dollar appears to be boosting air travel.” However, there was plenty of weakness in mining, retail, manufacturing and entertainment.

“This should have been an easy quarter to rack up a big growth rate, with the third quarter base of comparison having a power blackout that crushed August’s production, and with the US economy averaging a 6% second-half pace,” offers CIBC World Markets. “Instead, even a healthy 0.4% December gain would put real GDP on track for only 3.2% annualized growth, falling nearly a point short of an already-downgraded forecast by the Bank of Canada.”

“The fizzling momentum at year-end raises the likelihood of a sub-par showing of less than 3% in the first quarter of 2004. Accordingly, January’s rate cut by the central bank is unlikely to be the last one,” TD says.

BMO says that Canadian markets have already factored in a rate cut by the Bank of Canada in March. “This report will only firm up this expectation,” it says.

“Overall, however, this is a weak report, one suggesting that fourth-quarter growth won’t achieve the 4% expectation set out by the Bank of Canada. It’s therefore likely we will see another rate cut on March 2,” agrees RBC Financial.

“The Canadian economy is struggling to gather much forward momentum. GDP has risen at a modest 2% annual rate over the past six months, while the U.S. averaged over 6% growth in the second half of 2003,” says BMO Nesbitt Burns. “Simply put, there is still a strong case for a follow-up rate cut by the Bank of Canada in early March.”