Canada's Services Economy Extends Downturn Amid Trade Concerns
Canada's services sector continued its decline in February, marking a fourth straight month of contraction as an uncertain trading environment weighed heavily on activity and new business, according to the latest S&P Global Canada Services PMI data released on Wednesday. The headline Business Activity Index showed a slight improvement, edging up to 46.5 from 45.8 in January, but it remained firmly below the critical 50 threshold, which indicates deterioration rather than growth.
Persistent Decline in New Business and Employment
Paul Smith, economics director at S&P Global Market Intelligence, highlighted the ongoing challenges in a statement, noting, "Canada's service sector economy remained mired in a downturn during February, with both activity and new business falling again – albeit to weaker degrees." The measure of new business remained in contraction for a 15th consecutive month, although it edged up to 46.9 from 44.9 in January. This prolonged lack of new work continued to pressure employment numbers, which declined further over the month.
However, Smith pointed to a silver lining, stating that firms expressed some confidence in future improvements. The Future Activity Index rose to 60.8, reaching its highest level since October, suggesting optimism about potential recovery in the coming year.
Impact of Trade War and USMCA Negotiations
The broader economic context has been significantly affected by external factors. Canada's economy has been adversely impacted by the U.S.-led trade war, while investors remain anxious about uncertain negotiations surrounding the United States-Mexico-Canada Agreement (USMCA). This North American trade pact is set for review by a July 1 deadline, adding to the volatility and uncertainty in the trading environment.
Easing Cost Inflation and Manufacturing Contrast
Amid the downturn, there was a notable easing of cost pressures. The Input Prices Index fell to 57.1 from 58.0 in January, marking its lowest level since September 2024, which could provide some relief to businesses grappling with inflationary challenges.
In contrast to the services sector, recent data from Monday showed a more positive trend in manufacturing. The S&P Global Canada Manufacturing PMI rose to 51.0 from 50.4 in January, posting its highest level since January 2025 and indicating improved business conditions for the second consecutive month. This divergence highlights the uneven recovery across different sectors of the Canadian economy.
The S&P Global Canada Composite PMI Output Index, which combines both services and manufacturing, edged up to 47.1 from 46.4 in January but remained below the 50 threshold for the fourth consecutive month, underscoring the overall economic challenges.
