Morning Market Brief March 6, 2025

Canadian business activity slows in February

Data from S&P Global showed business activity in Canada contracted in February. The threat of tariffs and their potential impact on Canada’s economy weighed on consumer and business activity. The news added to the negative sentiment prevailing after tariffs from the US were put into place on Tuesday. Canada is working to put an end to the tariffs and maintain its strong trade relationship with the US.

• The S&P Global Canada Composite Purchasing Managers Index fell to 46.8 in February from 49.5 in the previous month. Manufacturing and services sector activity contracted over the month. Employment declined across both sectors.
• Canada’s manufacturing sector contracted for the first time since August 2024. It was also its sharpest contraction since December 2023. Manufacturing firms said that new orders, including export orders, dropped in part due to uncertainty over tariffs.
• Ongoing tariffs could have a negative impact on Canada’s manufacturing sector. Slower trade activity could result in a decline in demand for Canadian manufactured goods. US President Donald Trump has stated that one of his goals with tariffs is to bring manufacturing activity to the US. Weaker trade activity could lead to lower new orders and output.
• Tariffs came into effect on Tuesday. Canada requested consultations with the World Trade Organization. Prime Minister Justin Trudeau also had a conversation with President Trump yesterday, but it appears to have provided little relief.

Amid all the tariff news, the White House said it would delay tariffs on automakers in Canada and Mexico for one month. Even before the implementation of tariffs, the threat of them was weighing on consumer and business activity in Canada. With economic activity expected to slow, expectations have increased for another rate cut from the Bank of Canada at its March meeting.

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