Canadian economy shrinks, marking worst performance since 2020

Canada’s economy contracted by 0.4% in the second quarter of 2025, reversing a 0.5% growth seen in the previous quarter. This decline is the sharpest since the height of the COVID-19 pandemic.

The drop was mainly driven by a steep 7.5% fall in exports and weaker business investment in machinery and equipment. Imports also fell, but only by 1.3%. Despite these setbacks, faster inventory build-up and stronger household spending helped soften the blow, according to Trading Economics. 

Business inventories increased significantly, adding $30.1 billion to the economy. Household spending rose by 1.1%, a notable improvement from just 0.1% in the first quarter. Government spending also grew by 1.8%, even as corporate incomes and investments weakened and federal revenues declined.

On an annualized basis, Canada’s GDP shrank by 1.6%, much worse than the expected 0.6% decline, signaling challenges ahead for the country’s economic recovery.

By Sabina Mammadli