Canadian economy shrinks 1.6% as exports decline

Canada’s economy took a hit in the second quarter and Statistics Canada says it’s because exports and business investments dropped, partly due to U.S. tariffs.

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Canada’s economy took a hit in the second quarter and Statistics Canada says it’s because exports and business investments dropped, partly due to U.S. tariffs.

Gross domestic product fell at a 1.6 per cent annualized pace from April to June, the sharpest drop since the pandemic and the first quarterly contraction in nearly two years.

That followed modest growth in the first three months of 2025.

Statistics Canada said the decline was led by a steep drop in exports, particularly autos, machinery and equipment, as Canadian goods were affected by U.S. tariffs.

Overall exports declined by 7.5 per cent, led by the tariff-hit auto sector, which saw a 24.7 per cent drop in car and light truck exports. Business investment in machinery, equipment and travel services fell by 9.4 per cent.

Meanwhile, imports fell as Ottawa retaliated with its own tariffs against the United States.

Most tariffs have been dropped by Carney last Friday, when he announced that all American goods imported into Canada that are in compliance with CUSMA would be tariff free.

Household and government spending rose despite weak trade, offsetting some of the damage.

Families spent more on vehicles, food and services, while governments increased spending and businesses added to stockpiles. The numbers come ahead of the Bank of Canada’s next interest rate decision on September 17.