The Canadian economy appears to have stalled in the second quarter as investment in housing continues to decline, led by a drop in new construction.

Statistics Canada said today, Friday, that the economy shrank at an annual rate of 0.2 percent in the second quarter.

The agency also revised its growth reading for the first quarter to an annualized pace of 2.6 percent, down from 3.1 percent.

The decline in the second quarter came with a 2.1 percent drop in housing investment, marking its fifth consecutive quarterly decline. New construction fell by 8.2 percent in this quarter, while spending on renovations also decreased by 4.3 percent.

The reduction in spending came as Canadians face rising borrowing costs driven by interest rate hikes from the Bank of Canada, which is trying to bring inflation back to its 2 percent target.

The Canadian economy recorded a growth of 0.1% in October and stagnated in November, according to Statscan. The housing agency warns that households now owe more than Canada's entire GDP.

The weakness in the second quarter is also attributed to a decline in inventory accumulation, as well as a slowdown in export growth and household spending.

Goods and services exports rose by 0.1 percent in the second quarter compared to an increase of 2.5 percent in the first quarter.

Meanwhile, the growth of real household spending slowed to 0.1 percent in the second quarter compared to 1.2 percent in the first quarter.

Preliminary estimates also indicate that real GDP did not change in July.

At the same time, business investment in non-residential structures rose by 2.4 percent in the second quarter, supported by a 3.3 percent increase in spending on engineering structures.

The overall decline in the second quarter came with a shrinking economy by 0.2 percent in June.

Service-producing industries also shrank by 0.2 percent in June, while goods-producing industries contracted by 0.4 percent.

Statistics Canada also stated that its early estimates for July indicate that real GDP did not change significantly for that month, although it warned that the figure would be updated.

This report comes ahead of the Bank of Canada's recent interest rate decision, scheduled to be released next Wednesday.

The central bank raised its key interest rate target by a quarter of a percentage point to five percent in July, stating it remains concerned about the possibility of stalling progress toward its two percent inflation target.