Canada’s Economy Contracted 1.6% In The Second Quarter

Canada’s economy contracted 1.6% on a year-over-year basis in the second quarter after growing an annualized 2% in the first three months of the year.

Statistics Canada said that gross domestic product (GDP) declined 0.4% in Q2 from the first quarter, largely because of a drop in exports and decreased business investment.

The Ottawa-based agency said that GDP declined 1.6% on an annualized basis last quarter, slowing from growth of 2% to start 2025.

The overall economic decline was partially offset by higher household spending among Canadians and lower imports.

Final domestic demand across Canada, which represents final consumption expenditures and investment in fixed capital, was up 0.9% in the second quarter of 2025.

Exports from across Canada declined 7.5% in the second quarter after increasing 1.4% in the first quarter. The Q2 decline was due to U.S. tariffs.

Exports of passenger cars and light trucks fell 25% in the second quarter, while exports of industrial machinery, equipment and parts dropped 18.5%.

However, the export decline was moderated somewhat by a 1.3% decline in international imports during Q2.

Business investment in machinery and equipment fell 0.6% in the second quarter of the year as every group recorded declines except computers and computer equipment.

Outside of 2020, the first year of the COVID-19 pandemic, this was the slowest pace of investment in machinery and equipment since the end of 2016, said Statistics Canada.

Compensation of employees edged up 0.2% during Q2, which was the smallest increase since the second quarter of 2016.

And the household saving rate fell to 5% in the second quarter, down from 6% in Q1.

However, household spending among Canadians increased 1.1% in the second quarter after rising 0.1% in the first quarter.

Also, residential real estate investments rose 1.5% in the second quarter, driven by an increase in new construction.