OTTAWA—Canada’s economy contracted sharply in the latest quarter, weighed down by a drop in exports and the slowest buildup of inventories by businesses in two years.

Gross domestic product, a broad measure of goods and services produced across the country, declined at a seasonally adjusted annualized rate of 1.1% for the three months, Statistics Canada said Thursday. That followed growth of 1.4% in the second quarter, a revision from an earlier estimate the economy contracted 0.2%.