Canada's Economy Faces Unexpected Contraction Amid U.S. Tariffs

Canada's economy faced an unforeseen downturn in the second quarter, contracting by 1.6% on an annualized basis, StatsCan reported on Friday. The drop, influenced by U.S. tariffs that significantly reduced exports, was partially offset by robust household and government spending.

This marks the first contraction in seven quarters and has increased anticipation of a potential interest rate cut by the Bank of Canada in September. The central bank, which has kept rates steady at 2.75% in recent meetings, may be prompted to act due to growing economic pressure.

Despite the downturn, domestic demand demonstrated resilience, growing by 3.5%, bolstered by rises in household consumption, residential investment, and government spending. Meanwhile, the Canadian dollar dipped and bond yields fell in response to the new data.

(With inputs from agencies.)