Canada’s services sector continued to weaken in March, marking its fifth straight month of contraction as businesses faced slower demand and rising operating costs linked to global instability and higher fuel prices. New data from S&P Global showed that uncertainty connected to the ongoing conflict in the Middle East played a key role in delaying client decisions and reducing new business activity across the sector.
The Canada Services Purchasing Managers’ Index Business Activity measure rose slightly to 47.2 in March from 46.5 in February. While the increase represented the strongest reading in five months, it remained below the neutral 50 threshold that separates growth from contraction, indicating that activity continued to decline overall.
Paul Smith of S&P Global Market Intelligence noted that March remained a difficult month for service-based firms. Although the pace of decline slowed compared with earlier months, businesses still reported falling activity levels and reduced inflows of new work. Companies indicated that uncertainty tied to global events was causing clients to delay decisions, even as many firms remained hopeful that a resolution to the conflict could improve conditions later in the year.
Higher fuel and transportation costs added additional pressure on businesses, pushing operating expenses sharply upward. The Input Prices Index climbed to 62.3 in March, its highest level since June, highlighting growing cost burdens across the sector. At the same time, the new business index remained below the growth threshold for a sixteenth consecutive month, signaling continued weakness in demand.
Canada’s broader economic environment has also been affected by trade tensions with the United States and uncertainty surrounding the upcoming review of the United States–Mexico–Canada Agreement, which faces a key deadline later this year. These factors have contributed to cautious business sentiment and slower expansion across several industries.
Despite ongoing challenges, there were some signs of optimism. The future activity index rose to a six-month high of 61.9, suggesting companies expect conditions to improve later in 2026. Meanwhile, the composite output index, which combines services and manufacturing activity, edged up slightly to 47.6 but remained below the growth threshold, reinforcing the view that Canada’s economy continues to face near-term pressure.
