Canada's Manufacturing Sector Faces Sharp Decline Amid Tariffs And Trade Uncertainty

Canada‘s manufacturing sector shrank for the fifth month in a row, with the S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) falling to 45.6 in June, down from 46.1 in May — well below the neutral 50 mark that separates growth from contraction, according to the Financial Post.

The latest data shows the steepest drop in production since the spring of 2020, when the pandemic hit. According to S&P Global, this downturn was driven by weak demand, a sharp fall in new orders, and ongoing trade challenges. “A lack of new orders underpinned the latest downturn and helped to explain the steepest reduction in production since the height of the pandemic,” said Paul Smith, economics director at S&P Global Market Intelligence.

The Financial Post writes that manufacturers reported a significant decline in export demand, particularly from the U.S., which accounts for around 75% of Canada‘s exports. Rising costs due to U.S. tariffs have made Canadian goods less competitive. As a result, international orders dropped at one of the steepest rates in the survey’s history.

“Canadas manufacturing economy continued to struggle in the face of tariffs and the ongoing uncertainty related to future trade policies,” Smith added.

The slump has forced firms to cut output and reduce purchasing, leading to the fastest drop in input inventories in five years. Some of this was due to intentional destocking, but supply chain delays also led companies to rely on existing stock.

Employment in the sector fell for the fifth consecutive month, with firms choosing not to replace departing staff or enacting layoffs to manage costs. “International sales unsurprisingly were especially subdued, and, against this backdrop, firms chose to make further cuts to their employment and purchasing activity,” said Smith.

Despite the grim data, some manufacturers are cautiously optimistic. Confidence in the outlook rose to its highest level since January, though it remains below the historical average. “Although sentiment improved on hopes of some stability in the year ahead, confidence in the outlook remains subdued and uncertain,” Smith concluded.