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By Fergal Smith
TORONTO (Reuters) - The downturn in Canada's services economy deepened in March as U.S. tariffs and the start of a general election campaign led to an increase in economic uncertainty that cut client spending, S&P Global's Canada services PMI data showed on Thursday.
The headline Business Activity Index fell to 41.2 from 46.6 in February, posting its lowest level since June 2020, shortly after the start of the COVID-19 crisis. A reading below 50 shows a contraction in activity.
"Against the backdrop of an unpredictable economic and political environment, Canada's services economy experienced broadly unprecedented drops in activity and new business during March," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.
"Uncertainty stemmed principally from tariffs, and the unpredictable nature of their application and scope, leading to huge nervousness and a retrenchment of spending amongst businesses and consumers alike."
U.S. President Donald Trump sees tariffs as a tool to raise revenue to offset his promised tax cuts and to revive a long-declining U.S. industrial base. Canada sends about 75% of its exports to the United States.
The New Business Index was at 41.3, down from 45.1 in February, and the measure of new export business slumped to 33.8 from 38.7.
"The news of a snap general election in late April has added even more uncertainty to the outlook, and this served to further weigh on business confidence during March," Smith said.
New Canadian Prime Minister Mark Carney has called a snap election for April 28, saying he needed a strong mandate to deal with the threat posed by Trump.
Confidence in the outlook slumped to a near five-year low, with transport and storage firms especially downbeat, S&P Global said.
The S&P Global Canada Composite PMI Output Index fell to 42.0 last month from 46.8 in February, marking the steepest contraction in output since June 2020.
Data on Monday showed that Canadian manufacturing activity contracted at a steeper rate in March as new orders tumbled. The manufacturing PMI was at 46.3, down from 47.8 in February.
(Reporting by Fergal Smith; Editing by Chizu Nomiyama)
