Canada Services Sector Contracts for Fourth Month as Tariffs, Iran War Weigh

  • Canada's services sector contracted for a fourth consecutive month in September as trade tensions and the war in Iran weighed on demand, exports and business confidence, S&P Global's purchasing managers' index (PMI) showed on October 5, 2026. The deterioration eased from August, but activity remained firmly in contraction territory, underscoring the pressure facing businesses as higher trade barriers and geopolitical uncertainty raise costs and weaken demand.
  • S&P Global's Canada Services Business Activity Index climbed to 48.3 in September from 46.8 in August, but remained below the 50 threshold1 which separates growth from contraction. "September once again proved to be a difficult month for businesses," said Paul Smith, economics director at S&P Global Market Intelligence, noting that both output and new work declined during the month.
  • Businesses continued to cite tariffs and the war in Iran as major sources of uncertainty, with the disruptions weighing on export trade while pushing operating costs higher, Smith said. Canada and the United States have imposed successive rounds of counter-tariffs since early 2025, while Washington last week expanded restrictions affecting imports of several Canadian products, including alcoholic beverages, motorcycles and dairy goods.
  • Demand remained weak in September. The new business index rose from August but stayed below the 50 mark at 48.5, extending its contraction streak to five months. New export business declined at a faster pace than in August, highlighting the impact of weaker international demand and trade disruptions.
  • At the same time, cost pressures intensified. The services-sector input price index increased to 62.2 from 61.7 in August, pointing to a further acceleration in operating expenses. The weak demand and elevated costs leave Canada's services economy facing a difficult backdrop, with businesses contending with the effects of trade restrictions while geopolitical tensions continue to cloud the outlook.

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1The 50 threshold on the PMI indicates whether business activity is expanding or contracting compared with the previous month. A reading above 50 indicates expansion, while a reading below 50 indicates contraction. A reading of 50 indicates no change in business activity.

(Source: Investing.com)