Canada’s service economy showed its steepest contraction in six months during August, as heightened trade friction with the United States and ongoing Middle‑East instability dampened demand for new contracts, S&P Global reported Thursday.

Key PMI figures

The headline Business Activity Index slipped to 46.8 in August from 49.1 in July, the lowest reading since February. A figure below 50 signals contraction. The new‑business sub‑index fell to 46.1, its weakest level since January, down from 48.4 the month before.

Trade tensions drive uncertainty

Paul Smith, economics director at S&P Global Market Intelligence, linked the slowdown to “escalating trade tensions with the U.S. and the ongoing conflict in the Middle East.” He noted that U.S. officials imposed 50% tariffs on $20 billion of Canadian imports on August 22 after trade talks collapsed, adding further pressure on Canadian service providers.

Smith also warned that confidence in the sector hit its lowest point in over a year, with rising prices seen as a threat to future business performance.

Future outlook

The future activity index dropped to 56.4 from 57.5, its lowest level since June 2025, while input‑price pressure remained elevated despite a modest dip from July.

Overall, the S&P Global Canada Composite PMI fell to 47.8, the weakest since March, driven primarily by the service‑sector weakness. By contrast, the manufacturing PMI edged down slightly to 53.0, still indicating expansion for a fifth consecutive month.

Implications for Canadian businesses

The data suggest Canadian service firms are facing a tougher environment as trade policy uncertainty and global geopolitical risks persist. Companies may need to tighten budgets and delay new projects until the trade dispute eases and confidence improves.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.