By Fergal Smith

Canada’s Services Economy Declines

TORONTO (Reuters) – Canada’s services economy deteriorated for the first time in three months in December, impacted by a postal workers’ strike, according to S&P Global’s Canada services PMI data released on Monday.

The headline business activity index fell to 48.2 from 51.2 in November, dipping below the 50.0 no-change mark for the first time since September, indicating a contraction in activity.

“Canada’s services economy ended 2024 on a subdued note,” said Paul Smith, economics director at S&P Global Market Intelligence.

He mentioned that while the downturn was exacerbated by postal strikes, underlying demand also disappointed, with clients being cautious and unwilling to commit to new projects as 2024 closed.

A month-long strike by Canadian postal workers concluded in mid-December after the country’s labor relations board ordered an end to the work stoppage.

The new business index decreased to 46.4 from 50.1 in November, while the new export business measure fell to 39.7, marking its lowest level since December 2020.

U.S. President-elect Donald Trump has threatened to impose a 25% tariff on all imports from Canada.

Smith noted a high degree of excess capacity in the services economy, with firms managing workloads easily, according to the latest PMI data.

The outstanding business index dropped to its lowest level in four years at 44.6. The amount of economic slack has raised concerns for the Bank of Canada, which recently reduced its benchmark interest rate by half a percentage point to 3.25%.

The S&P Global Canada Composite PMI Output Index fell to 49.0 last month from 51.5 in November as the downturn in the services sector offset a fourth consecutive month of increased factory activity.

Data released last Thursday indicated that Canada’s manufacturing PMI rose to a 22-month high of 52.2 in December, bolstered by inventory accumulation by U.S. clients in anticipation of trade tariffs, which supported export sales.