Expansion of Canada's Services Economy

By Fergal Smith

TORONTO (Reuters) – Canada's services economy expanded for a second straight month in November as firms added staff, but incoming new work was subdued and the threat of U.S. tariffs could yet hurt sentiment, S&P Global's Canada services PMI data showed on Wednesday.

The headline business activity index rose to 51.2 from 50.4 in October, marking its highest level since April 2023. A reading above 50 indicates expansion in the sector.

> "November proved to be a relatively positive month for the Canadian service sector," Paul Smith, economics director at S&P Global Market Intelligence, stated.

However, he noted that the upturn was somewhat constrained by almost no growth in new business volumes, and firms remain concerned over the underlying strength of business conditions despite the stimulative effect of lower interest rates on economic activity.

The employment index increased to a 14-month high of 51.4 from 50.7 in October, while the new business measure fell to 50.1 from 50.5, affected by a significant decline in new export business.

The Bank of Canada has reduced its benchmark interest rate by 1.25 percentage points since June, lowering borrowing costs to 3.75%. Investors anticipate further easing at the upcoming policy decision on December 11.

> "It's worth noting that the latest survey took place before U.S. President-elect Trump's announcement of changes to U.S. trade policy in 2025. Although the scope and nature of tariffs on Canadian goods and services remains uncertain, already fragile confidence and economic growth are likely to be affected in the coming months," Smith commented.

U.S. President-elect Donald Trump has vowed to impose a 25% tariff on imports from Canada and Mexico. Canada sends around 75% of its exports to the United States.

The S&P Global Canada Composite PMI Output Index, which captures both manufacturing and service sector activity, rose to 51.5 in November from 50.7 in October, reaching its highest level since May 2022.

Data released on Monday revealed that Canada's manufacturing PMI climbed to a 21-month high of 52.0 in November.