Canada's economy shrinks for 1st time in 2 years

Canada's economy shrank in the second quarter of the year, the first quarterly decline since the recession of 2009.

The country's gross domestic product fell 0.1 per cent in the April-June period, or 0.4 per cent on an annualized basis, Statistics Canada said Wednesday.

Economists were expecting growth would be flat in the period.

The decline was due largely to a 2.1 per cent drop in exports, the agency said.

Canada's economy expanded at an annualized pace of 3.6 per cent in the first quarter. The figure is a downward revision of what Statistics Canada initially reported, which was 3.9 per cent growth.

By comparison, the U.S. economy expanded by one per cent in the second quarter.

"This morning's report is a reminder that Canada is not an island, and is vulnerable to external economic shocks," TD economist Diana Petramala said.

Although the overall economy shrank slightly, two key sectors recorded much larger declines — oil and gas extraction dropped 3.6 per cent, and output in the manufacturing sector declined by 0.9 per cent.

There were a few bright spots in the numbers. Consumer spending on goods and services increased 0.4 per cent in the quarter, after being unchanged in the first three months of the year.

Business investment in plants and equipment was also 3.7 per cent higher. "That was encouraging," Finance Minister Jim Flaherty told journalists in reaction to the news in Toronto on Wednesday. "We’re encouraging business to open up their balance sheets and spend money, and there’s some evidence of that."

"The good news is that the domestic economy remains strong with consumption and business investment continuing to expand," Flaherty said.