Heightened trade uncertainty over the summer took a major toll on Canada's economy in the third quarter, prompting households to slow consumption and businesses to sharply curtail investment.

Statistics Canada released data Friday showing consumption spending grew at the slowest pace in more than two years, while businesses recorded an unexpected drop in investment and scaled back on inventories. Overall, the economy grew at a 2 per cent annualized pace, largely due an improved trade picture as imports fell. Domestic demand -- which excludes trade -- was the weakest in more than a year, recording a slight contraction.

While the headline growth figure came in as economists had expected, the numbers suggest the growing trade tensions that occurred over the summer -- and eventually culminated in a new deal with the U.S. and Mexico -- put at least a temporary chill on spending.

Other factors impacting growth may have been a weakening outlook for the country's oil industry and the impact of rising interest rates on consumers.

Consumption slowed to an annualized 1.2 per cent pace in the third quarter, the weakest growth since the first quarter of 2016. That's even as households scaled back on savings.

Sluggish business investment may be the biggest surprise in the data, with non-residential capital spending down an annualized 7.1 per cent -- the first decline since the fourth quarter of 2016. Residential investment contracted for a third straight quarter, down an annualized 5.9 per cent.

For the three months between July and September, it all added up to sluggish domestic demand, down an annualized 0.1 per cent in the third quarter.

September ended up being the worst month of the quarter, with data released Friday showing a 0.1 per cent drop. That was the first monthly decline since January. Economists predicted an increase of 0.1 per cent.

The report could raise concerns about the health of the economy, which has been doing relatively well up until now even in the face of higher interest rates. The economy grew by a Group-of-Seven-best 3.1 per cent in 2017, and had expanded at a healthy 2.3 per cent clip in the first half of this year in part due to stronger business investment. It grew 2.9 per cent in the second quarter.

Imports fell an annualized 7.8 per cent in the third quarter, on a sharp drop in refined petroleum products. The decline in imports coincided with increased domestic production of gasoline after the completion of maintenance work at Canadian refineries.

Because exports eked out a small 0.9 annualized increase in the third quarter, the contribution of trade on growth was large -- adding about 3 percentage points.

Another major drag on growth was a slowdown in inventory accumulation. That impact dragged down annualized growth by 1.3 percentage points.