Canada’s economy shrank in the second quarter as U.S. tariffs hammered exports and business spending slowed to its weakest pace since 2016 outside the pandemic.Statistics Canada reported real GDP fell 0.1% in June, the third straight monthly decline. For the quarter, GDP dropped 0.4% — an annualized 1.6% contraction.Exports collapsed 7.5% in the second quarter, reversing a 1.4% gain in the first. International exports of passenger cars and light trucks plummeted 24.7% as new U.S. tariffs took hold. Canada’s retaliatory measures also weighed on trade, with imports down 1.3%.Business spending fell 0.6%, dragged down by machinery and equipment. Other than during the pandemic, it was the weakest investment pace since late 2016.Consumers were the lone bright spot. Household spending rose 1.1% in the quarter, powered by a 5.6% jump in new trucks, vans and SUVs. Residential spending also grew 1.5%, led by a surge in new construction in B.C.But weakness spread in June, with goods-producing industries contracting 0.5% on the back of falling manufacturing and utilities, while service-producing industries edged up 0.1%.The labour market is showing cracks. Canada gained 83,000 jobs in June but lost 41,000 in July. The employment rate slipped to 60.7%, down 0.4 points since January.Economists warn Canada’s economic fate remains tied to Washington. A new trade and security deal could provide relief, but until then, businesses are expected to hold back on spending and hiring, deepening the slowdown.
