The Canadian economy contracted in the second quarter as new construction developments and investment in housing are in decline, according to Statistics Canada.

On Friday, Statistics Canada said that during the second quarter, the economy contracted 0.2% overall, at an annualized rate. During the first quarter it shrunk from 3.1% to 2.6%.

Housing investment fell by 2.1%, marking its fifth consecutive quarterly decrease and new construction is down by 8.2%. Renovation spending dropped as well, down 4.3%.

Interest rates raised by the Bank of Canada in an attempt to bring inflation back to its target of 2% have brought forth higher borrowing costs, which means a drop in household spending by Canadians.

Real household spending dropped in growth from 1.2% in the first quarter to 0.1% in the second quarter.  

Another contributing factor is slow growth in exports, up only 0.1% in the second quarter, compared to an increase of 2.5% in the first quarter. 

The second quarter did see an increase of business investment in non-residential structures of 2.4%, which was accelerated by a 3.3% gain in spending on engineering structures. 

In June, service industries fell by 0.2% and good-producing industries dropped by 0.4%.

In July, real GDP is estimated to have remained the same, however Statistics Canada warned that the estimate may need to be revised. 

The second quarter report comes just a week before the Bank of Canada will announce their latest decision regarding interest rates. 

In July, the central bank’s key interest rate target was increased by 0.25%, bringing it to 5% and the Bank of Canada remains worried that its target of 2% inflation is being hampered.