Canadian factory PMI hits 3-month low as war adds to economic uncertainty

By Fergal Smith

April 1 (Reuters) - Canada's manufacturing sector stagnated in March as U.S. tariffs and uncertainty linked to the Middle East war led to a decline in output and raised input costs, data showed on Wednesday.

The S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) fell to 50.0 last month from 51.0 in February, marking the lowest level in three months. A reading above 50 shows expansion in the sector, while a sub-50 reading shows contraction. "Canada's manufacturing sector again experienced subdued performance during March," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement. "Production declined marginally and new orders were down modestly, in part linked to tariffs on trade with the neighbouring United States."

The output index dipped to 49.6 from 50.0 in February and the measure of new orders was at 48.7, down from 50.6. U.S. tariffs on critical sectors, such as autos, steel and aluminum have badly hampered Canadian exports.

"The conflict in the Middle East, which had a relatively muted impact on the Canadian manufacturing sector compared to regions like Europe in March, has understandably raised the level of uncertainty in the outlook," Smith said.

"With tariffs also still a concern for many firms, confidence regarding production in the year ahead fell to a three-month low and remained way below its average level."

The future output index fell to 55.4 from 57.5 in February.

Canada is a major producer of oil, which has soared in price since the start of the U.S.-Israel war on Iran on February 28.

Higher fuel prices along with tariffs contributed to increased input costs. The input price index edged up to 59.2 from 59.1 in February, registering its highest level since August. The Bank of Canada has warned it was ready to raise borrowing costs if higher energy prices risked turning into persistent inflation. (Reporting by Fergal Smith; Editing by Chizu Nomiyama )