The Canadian economy contracted in the second quarter under the weight of U.S. tariffs, Statistics Canada said Friday.
Real gross domestic product declined 1.6% on an annualized basis in the second quarter thanks to a sharp drop-off in exports and business investment.
That’s down from annualized growth of 2% in the first quarter, a figure StatCan revised down Friday from 2.2% originally.
Real GDP was also down on a per-capita basis in the second quarter, swinging from a gain in the previous quarter.
U.S. President Donald Trump ramped up his tariffs against Canada and the world in the second quarter, particularly targeting steel, aluminum and autos.
Economists expected a sharp slowing in growth last quarter as businesses seemed to rush orders early in the year to get ahead of tariffs — boosting activity in the first quarter and cooling the economy off in the second.
International exports of passenger cars and light trucks plummeted 24.7% in the quarter, StatCan said.
Industrial machinery, equipment and parts exports declined, as did travel services.
Investment in machinery and equipment meanwhile was down 9.4% in the second quarter — the slowest pace observed since 2016, outside the Covid pandemic.
Imports were also down last quarter as Ottawa fired back with counter-tariffs against the United States, discouraging U.S. firms from selling to Canada. A drop-off in Canadians’ travel to the United States during the trade war also lowered imports.
The decline in imports helped to offset the drop in GDP. Businesses were also stockpiling goods at a faster rate and government and household spending ramped up, boosting growth somewhat last quarter.
StatCan’s early estimates based on the monthly real GDP by industry results had called for flat growth in the second quarter, though these figures can vary from the quarterly spending-based figures published Friday.
The agency said real GDP declined 0.1% in the month of June, though it had initially expected growth of 0.1%. A third decline in the tariff-struck manufacturing sector in four months meant a drag on June business activity, the agency said.
Goods-producing sectors were broadly down 0.5% in June while services industries edged up 0.1%.
June’s decline matched contractions in April and May, StatCan said, marking the first three consecutive months with GDP declines since the final quarter of 2022.
The agency’s early estimates have real GDP ticking up 0.1% in July.