Economic activity in Canada inched ahead by 0.1% in November, as growth remained modest through the autumn, Statistics Canada reported today,

This is slightly lower than market expectations of a 0.2% rise.

The economy grew by 0.2% in October, and by 0.1% in September.

Service industry output rose by 0.2%, but production of goods declined by a similar amount, the federal government agency said.

Retail trade as well as arts, entertainment and recreation posted the strongest advances. “This goes to show that Canadian domestic demand was still very healthy in the final quarter of 2007,” wrote Jacqui Douglas, economic strategist at TD Securities, in a note following the GDP release.

However, the forestry, manufacturing, mining and wholesale trade sectors all saw declines.

The Canadian dollar retreated sharply in the wake of the report. The loonie was trading down 1.17¢ at US$99.51 on foreign currency markets.

The Canadian manufacturing sector saw its output fall 0.3% in November, as it reached its second-lowest level since the start of 2007.

Stats Can said production of durable goods fell 0.9%, overshadowing a 0.6% increase in non-durable goods manufacturing.

Retail trade was up 0.4% in the month, propelled by sales at computer, convenience and general merchandise stores.

“The weakness in Canada’s goods-producing industries is going to leave its mark since Q4 GDP is on track for only 1.5% annualized growth,” said Douglas. “This is well below Canada’s potential rate of growth, and should knock a couple of percentage points off the output gap.”

Economists are expecting further interest rate cuts from the Bank of Canada to limit the slowing. The Royal Bank of Canada is expecting the overnight rate to be cut another 100 basis points in the first half of this year.

“The expected further weakening in U.S. growth through the first half of this year will likely put additional downward pressure on the pace of activity in Canada,” according to an RBC morning note.