The Canadian government said gross domestic product (GDP) in the second quarter shrank by 1.6%, its largest loss since 2009.
The Canadian economy was hit hard by wildfires in its oil sands region, reducing its production.
In the first quarter of the year, Canada's economy grew by 2.5%.
The recent drop in GDP was larger than analysts had projected, but not far off the predicted 1.5% loss.
"[The figure] could have been worse, given the hit from the wildfire, and clearly confirms the disappointing downward trend in exports over the last few months," said Sal Guatieri, senior economist at BMO Capital Markets.
In May, wildfires devastated the parts of northern Alberta where much of Canada's oil and natural gas is produced.
The fire burned 2,300 sq miles (5,957 sq km) of land and caused nearly $6bn ($4.5bn) in damages.
Economic growth is expected to pick up in the later half of the year as oil production gets back on track. But the decline in global oil prices will continue to weigh on the country's growth.
Canada's economy slipped into a recession at the end of 2015 as crude prices fell, but has since mostly recovered.
It was not only energy export that dropped in the spring, though. Declines in manufacturing exports also hit the economy. That sector is expected to pick up in the second half of 2016.
Economic figures for June, however, appear to signal that the downward trend may be over.
"I think the Bank of Canada is still confident that exports will turn up and lead the economic expansion in the second half of the year," said Mr Guatieri.
The government is also hoping that negotiations with the European Union over a free trade deal will help increase exports.
A slowdown in the US economy also factored into Canada's second-quarter stumble. The US is Canada's largest trading partner and an uptick in US consumer spending should help lift exports.
Canada's economic output shrank by its largest percentage since the global economic crisis as the country's oil sector continued to struggle.