Fears of a recession are growing in Canada after the country’s economy contracted in this year’s second quarter.
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The latest data showed that Canada’s economy contracted 1.6% on an annualized basis in Q2 after growing an annualized 2% in the first three months of 2025. The contraction has generated headlines about a looming recession, as steep U.S. tariffs start to impact businesses and consumers.
Canada’s economy fell into negative territory during the second quarter largely because of a drop in exports and decreased business investment. The U.S. remains Canada’s biggest export market, with 75% of Canadian goods and materials bound for the American market.
Darkening Clouds
Fears of a recession have dragged leading Canadian stocks lower, including e-commerce company Shopify (SHOP), clothing retailer Lululemon Athletica (LULU), and Restaurant Brands International (QSR), which owns the Burger King and Tim Hortons chains.
Canada’s exports, in particular, took a hit during Q2, falling a total of 7.5% after increasing 1.4% in the first quarter. The Q2 decline was due entirely to U.S. tariffs. Exports of passenger cars and light trucks dropped 25% in the quarter, while exports of industrial machinery, equipment, and parts fell 19%.
The uncertainty caused by the U.S. tariffs has also led to a decline in business investment within Canada. Investments in machinery and equipment fell 0.6% in the second quarter of the year, as every group recorded declines except computer equipment. The second quarter was the slowest pace of investment in machinery and equipment since 2016.
Is SHOP Stock a Buy?
The stock of Shopify has a consensus Moderate Buy rating among 32 Wall Street analysts. That rating is based on 19 Buy and 13 Hold recommendations issued in the last three months. The average SHOP price target of $164.15 implies 16.19% upside from current levels.
