Canada Services Sector Contracts Fourth Month Amid Trade Tensions and Iran War

Canada’s services sector faced another challenging month in September, marking the fourth straight month of contraction. The downturn, though slightly eased from August, remained significant as trade tensions and geopolitical uncertainty took a toll on businesses. S&P Global’s Canada Services Business Activity Index rose to 48.3 in September from 46.8 in August but stayed below the 50 mark, indicating continued contraction.

Paul Smith, economics director at S&P Global Market Intelligence, noted that both output and new work declined during the month. Businesses pointed to tariffs and the war in Iran as major sources of uncertainty, leading to disruptions in export trade and higher operating costs. The U.S. recently expanded restrictions on several Canadian products, including alcoholic beverages, motorcycles, and dairy goods, further straining trade relations.

Demand remained weak in September, with the new business index rising but staying below 50 at 48.5, marking five consecutive months of contraction. Export business declined even faster than in August, highlighting the impact of weaker international demand. Cost pressures intensified, as the services-sector input price index increased to 62.2 from 61.7 in August, signaling rising operating expenses.

The combination of weak demand and elevated costs presents a difficult outlook for Canada’s services economy. Businesses are grappling with the effects of trade restrictions and geopolitical tensions, which continue to cloud the economic forecast.