Canada's economy shrank in the second quarter by a much larger degree than expected on an annualized basis as U.S. tariffs squeezed exports. But higher household and government spending cushioned some of the impact, data showed on Friday.

The GDP for the quarter that ended June 30 slowed by 1.6 per cent on an annualized basis from a downwardly revised growth of two per cent posted in the first quarter, Statistics Canada said, taking the total annualized growth in the first six months of the year to 0.4 per cent.

This was the first quarterly contraction in seven quarters.

A larger-than-expected deceleration in growth could boost chances of a rate cut by the Bank of Canada in September. The central bank has kept rates steady at 2.75 per cent at its last three meetings.

Money markets were

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