Statistics Canada said the economy actually grew in June, the first monthly increase in almost a year.

Canada's central bank and many analysts think the economy is starting to grow again in the current quarter.

The 3.4 per cent drop in gross domestic product for the April-to-June period follows a sharp drop in the first three months of this year.

The economy plunged at an annual rate of 5.4 per cent in the first quarter, the largest quarterly decrease since 1991.

Economists have said Canada entered the downturn later than other countries and that Canada's performance typically lags the United States (US) by six months.

Trading relationship

Canada and the US share the largest trading relationship in the world. More than 70 per cent of Canada's exports go to the US.

Canadian Finance Minister Jim Flaherty acknowledged Sunday there is still work to be done to ensure Canada recovers from the recession and avoids slipping back into trouble, but he said Canada's response has been a model to the rest of the world.

While the US has seen 81 banks fail in 2009 alone, Canada has not experienced the failure of any major financial institution.

There has been no crippling mortgage meltdown or banking crisis north of the border, where the financial sector is dominated by five large banks.

"All countries must take a critical look at their own systems and do what it takes to prevent another financial meltdown. The Canadian system clearly works, and works well," Flaherty said.

- AP