Canada's gross domestic product contracted by 0.3 percent in August, defying expectations of flat growth and marking the fourth decline in five months, according to Statistics Canada data released on Friday.
The downturn followed an upwardly revised 0.3 percent expansion in July and erased any progress in the third quarter so far.
Both goods and services sectors contributed to the shrinkage, raising concerns about the economy's resilience amid ongoing trade tensions.
An advance estimate, however, offers a glimmer of hope, projecting 0.1 percent growth for September that would lift third-quarter annualized GDP to 0.4 percent.
The contraction was broad-based, with the goods-producing sector hit hardest by external pressures.
Manufacturing, which comprises nearly a tenth of GDP and has been battered by U.S. tariffs on steel, cars, lumber, and aluminum, fell by 0.5 percent.
The steepest decline occurred in mining, quarrying, and oil and gas extraction, down 0.7 percent, driven by a 1.2 percent drop in metal ore mining and a 5 percent plunge in coal mining.
In services, transportation and warehousing weakened, partly due to an airline strike, alongside a dip in wholesale trade.
Retail trade and real estate, rental, and leasing activities provided some counterbalance, posting gains that softened the overall services sector decline.
The second quarter saw GDP shrink by 1.6 percent, largely from tariff-induced export reductions and trade uncertainty, putting Canada on the edge of recession — defined as two consecutive quarterly contractions.
A positive September would avert that fate, though the advance indicator relies on industrial output data and may revise when Statistics Canada releases full income and expenditure figures.
The Bank of Canada had forecasted 0.5 percent annualized growth for the quarter, which the current estimate undershoots.
Economists remain cautious, with some anticipating near-term struggles, while others eye next week's federal budget for potential stimulus to spur demand.
The data prompted market reactions, with the Canadian dollar dipping 0.27 percent to 1.4022 against the U.S. dollar and two-year government bond yields falling 1.5 basis points to 2.397 percent.
"Canada's economy is on the precipice of a recession," said Michael Davenport, Senior Economist at Oxford Economics.