Introduction
The services sector in Canada faced a significant decline in March, primarily due to economic uncertainties stemming from U.S. tariffs and the onset of a general election campaign.Context
According to S&P Global's Canada services PMI data released on Thursday, the Business Activity Index plummeted to 41.2 from 46.6 in February, marking its lowest level since June 2020. A reading below 50 indicates a contraction in economic activity. Paul Smith, the economics director at S&P Global Market Intelligence, noted that these developments occurred amid an unpredictable economic and political landscape, leading to unprecedented declines in business activity and new business acquisitions for the month of March.Developments
The uncertainty was largely attributed to tariffs and their unpredictable implementation, causing businesses and consumers to exhibit a high level of nervousness and cut back on spending. U.S. President Donald Trump views tariffs as a mechanism to generate revenue offsetting tax cuts and revitalizing the declining U.S. industrial sector. Given that Canada exports approximately 75% of its goods to the United States, these policies have significant implications.The New Business Index also fell to 41.3, down from 45.1, while the index for new export business dropped sharply to 33.8 from 38.7. The announcement of a snap general election scheduled for late April has further compounded uncertainty, dampening business confidence. Newly appointed Prime Minister Mark Carney stated the need for a strong mandate to confront the challenges presented by Trump.
The S&P Global's Composite PMI Output Index saw a dramatic decline to 42.0 from 46.8 in February, reflecting the steepest contraction in output since June 2020. Furthermore, data released on Monday indicated that the manufacturing sector contracted at an even sharper rate in March, with the manufacturing PMI measuring 46.3, down from 47.8 in February.