Canadian factory PMI hits 15-month low on expanding trade war

By Fergal Smith

TORONTO (Reuters) - Canadian manufacturing activity contracted at a steeper rate in March as a widening global trade war triggered the sharpest decline in new orders since shortly after the start of the COVID-19 crisis.

The S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) fell to 46.3 from 47.8 in February, touching its lowest level since December 2023. A reading below 50 indicates contraction in the sector.

"Canada's manufacturing economy endured a challenging month in March as the spectre of tariffs being applied on a wider range of goods and services continued to weigh heavily on the sector," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.

U.S. President Donald Trump unveiled last Wednesday a 25% tariff on imported vehicles after previously raising tariffs on steel and aluminum. Additional tariffs are expected on April 2.

Canada sends about 75% of its exports to the United States.

The output index fell to 45.7 from 47.5 in February and the new orders measure was at 42.3, its lowest level since May 2020.

"Unsurprisingly, export trade suffered especially, and firms are growing increasingly pessimistic about the outlook, typically now expecting to see output decline from present levels over the coming year," Smith said. "Adding to the gloomy picture, and again a direct consequence of trade tariffs, inflationary pressures have picked up."

The measure of future output fell to 45.1, its lowest level in data going back to July 2012, while the input price index was at 63.6, up from 58.9 in February and its highest level since August 2022.

The Bank of Canada has said it needs to ensure higher prices from tariffs do not spread. Investors expect the central bank to pause its interest rate cutting campaign at a policy decision on April 16.

(Reporting by Fergal Smith; Editing by Chizu Nomiyama)