Canada’s services sector contracted for the second consecutive month in July as macroeconomic uncertainties continued to weigh on domestic market demand. The latest S&P Global report showed that the Business Activity Index rose to 49.1 from 47.1 in June, but remained below the 50 threshold that separates growth and contraction.
The pressure on the services sector stems from the United States’ announcement of new tariffs on nearly $20 billion worth of Canadian goods. The international trade issue is accompanied by regional geopolitical tensions that are weighing on business confidence and economic growth prospects for the coming year.
The New Business Index remained below the threshold for the third consecutive month as the contraction in new export business was reported to be accelerating. This situation pushed business confidence sentiment towards future prospects to its lowest level since June 2025.
In addition to the trade tariff issue, business input costs also jumped sharply due to the protracted military crisis in the Middle East. The Input Price Index jumped to 64.0 from 61.2 in June, driven by rising energy and fuel costs borne by industrialists.
Overall, weakness in the services sector weighed on the S&P Global Canada Composite PMI, which came in at 49.7. This contrasted with the manufacturing sector, which posted a positive reading of 53.5, its fastest expansion in more than four years.
