Canada's services PMI falls to 5-month low on tariff concerns

By Fergal Smith

TORONTO (Reuters) - The downturn in Canada's services economy deepened in February as firms avoided committing to new business in anticipation of a trade war, S&P Global's Canada services PMI data showed on Wednesday.

The headline Business Activity Index fell to 46.6 from 49.0 in January, the third straight month below the 50.0 no-change mark and the lowest level since September. A reading below 50 shows a contraction in activity.

"February saw the Canadian service sector hit hard by the spectre of tariffs being applied to all goods and services crossing the border with the U.S.," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement."

"Panellists widely reported that market activity had been paralysed by tariff uncertainty, with clients unwilling to commit to new business as they waited to see the size and scope of any changes to respective Canadian and U.S. trade policies."

U.S. President Donald Trump's new 25% tariffs on imports from Mexico and Canada took effect on Tuesday. Canadian Prime Minister Justin Trudeau said Ottawa was launching 25% tariffs on C$30 billion ($20.7 billion) worth of U.S. imports.

The New Business Index was at 45.1, down from 49.4 in January, and the measure of new export business slumped to 38.7, its lowest level since December 2020.

"Confidence amongst service providers themselves was inevitably impacted ... This meant firms adopted an increasingly cautious attitude, cutting employment noticeably and to the greatest degree since June 2020," Smith said.

The Employment Index was at 47.3, down from 48.3 in January, while the measure of input prices rose to a four-month high of 60.4 as a weaker Canadian dollar contributed to increased costs.

The S&P Global Canada Composite PMI Output Index fell to 46.8 last month from 49.5 in January, marking the steepest contraction in output since January 2024.

Data on Monday showed that Canadian manufacturing activity contracted for the first time in six months in February. The manufacturing PMI was at 47.8, down from 51.6 in January.

(Reporting by Fergal Smith; Editing by Chizu Nomiyama)

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