Canadian Economy Contracts 1.6% in Q2 as Exports Plunge Amid Trade Tensions

Canada's economy contracted significantly in the second quarter of 2025, shrinking 1.6% on an annualized basis, marking the first decline in nearly two years and the largest since the COVID-19 pandemic. The downturn was primarily driven by a sharp 7.5% drop in exports and reduced business investment in machinery and equipment, largely attributed to U.S. tariffs that pressured trade relations. Despite this contraction, higher household and government spending, along with increased business inventories, helped mitigate some of the economic decline. The economy showed signs of a potential rebound in July with a modest 0.1% growth forecast following three consecutive months of decline. Overall, the first half of 2025 saw a slow growth rate of 0.4%, down from a robust 2.2% expansion in the first quarter. Analysts and economists had anticipated a slowdown but were surprised by the magnitude of the contraction, reflecting the ongoing impact of trade tensions between Canada and the U.S.