Canada’s productivity crisis worsened in the second quarter, with labour productivity dropping by one per cent, Statistics Canada said on Wednesday.

The last time labour productivity declined this sharply was in the fourth quarter of 2022, when it fell by 1.1 per cent.

Trade uncertainty led to a pullback in business output, with nine out of 16 industry sectors recording decreases, with the largest declines reported in manufacturing and wholesale trade.

“Overall, manufacturing and wholesale trade were the main contributors to the decrease in business sector productivity in the second quarter,” the report said. “These two sectors — which are heavily dependent on merchandise trade — were particularly affected by the uncertainty surrounding Canada’s trade activities with the United States during the quarter.”

The business goods sector reported a larger reduction in productivity during the quarter compared to the business services sector. Hours worked in the second quarter increased by 0.3 per cent, a slower pace than the 0.6 per cent increase in the previous quarter.

Wednesday’s productivity numbers come on the heels of overall poor performance by the Canadian economy. Last week, Statistics Canada said

Canada’s gross domestic product (GDP) contracted at an annual rate of 1.6 per cent in the second quarter, a sharper decline than was expected by economists.

The contraction was driven by weakness in trade-exposed sectors, with exports declining by 7.5 per cent. Business investment also fell, driven by weak investment in machinery and equipment. GDP-per-capita was also down in the second quarter.

Canada’s productivity crisis is a longstanding issue. Bank of Nova Scotia senior economist Derek Holt said in the past five years, productivity has only been positive in six of the last 21 quarters.

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In a speech delivered last year in Halifax, Bank of Canada senior deputy governor Carolyn Rogers declared Canada’s poor productivity record “an emergency,” noting that in 1984 Canada produced 88 per cent of the value generated by the U.S. economy per hour but that the number had declined to 71 per cent by 2022.

Canada currently ranks as one of the lowest among its G7 peers when it comes to productivity.