Canada's services economy shrinks as war delays client decision-making

By Fergal Smith

April 6 (Reuters) - Canada's services economy contracted for a fifth straight month in March as uncertainty related to the war in the Middle East contributed to a decline in new business and after higher fuel costs raised operating expenses, S&P Global's Canada services PMI data showed on Monday.

The headline Business Activity Index rose to 47.2 last month from 46.5 in February. That marked the index's highest reading in five months but it remained below the 50 no-change mark - a reading below 50 shows deterioration in activity.

"Another challenging month for Canada's service sector was signalled during March, with activity and new business again falling, albeit at slower rates compared to recent months," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement. "The impact of the war in the Middle East has led to heightened uncertainty and delayed decision making amongst clients, although firms are confident that a swift resolution would lead to an uplift in activity."

The war has led to a surge in oil prices, raising the outlook for inflation globally.

Canada's economy has also been badly hurt by U.S. sectoral tariffs and uncertain negotiations around the United States-Mexico-Canada Agreement, a North American trade pact, which is set for review by a July 1 deadline.

The new business measure remained in contraction for a 16th straight month even as it edged up to 47.7 from 46.9 in February.

"The present business environment is clearly challenging, with firms reporting a steep increase in their operating expenses over the month, driven mainly by increased fuel and transportation costs," Smith said.

The Input Prices Index rose to 62.3, which was the highest level since June and up from 57.1 in February.

One bright spot was the future activity index, which rose to a six-month high of 61.9.

The S&P Global Canada Composite PMI Output Index edged up to 47.6 in March from 47.1 in February, registering its fifth consecutive month below the 50 threshold. On Wednesday, data showed that business conditions in Canada's manufacturing sector stagnated in March. The S&P Global Canada Manufacturing PMI fell to 50.0 last month from 51.0 in February. (Reporting by Fergal Smith; Editing by Chizu Nomiyama)