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By Fergal Smith
TORONTO (Reuters) - Canadian manufacturing activity contracted for the first time in six months in February as an uncertain trade outlook led to firms turning the most pessimistic since the start of the COVID-19 pandemic.
The S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) fell to 47.8 from 51.6 in January, its first move below the 50.0 no-change mark since August. A reading below 50 indicates contraction in the sector.
"The considerable uncertainty related to tariffs being applied on all goods passing across the Canada-United States border weighed heavily on the manufacturing economy during February," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.
"Output fell noticeably, driven lower by a steeper decline in new orders as product markets, both at home and abroad, were paralysed by concerns over the applicability and size of tariffs in the coming months."
The output index fell to 47.5 from 52.3 in January and the new orders index was at 45.4, its lowest level since July.
U.S. President Donald Trump has proposed 25% tariffs on Mexican and Canadian goods that are due to go into effect on March 4. Canada sends about 75% of its exports to the United States.
"Understandably, manufacturers grew increasingly downbeat about the future ... This meant firms also adopted an increasingly cautious approach to purchasing and employment," Smith said.
The measure of future output fell to 48.5 from 57.1 in January, marking the second-lowest level in survey data going back to July 2012. April 2020 was the only month when sentiment was weaker.
A stronger U.S. dollar and suppliers adjusting prices in anticipation of tariffs contributed to increased input prices, S&P Global said. The input price index was at 58.9, its highest level since April 2023.
The Bank of Canada has worried that tariffs could raise inflation even as they reduce prospects for economic growth.
(Reporting by Fergal Smith; Editing by Chizu Nomiyama)
