Canadian factory activity downshifts on global trade worries

TORONTO (Reuters) - Canadian manufacturing activity slowed in August as new work received by firms slumped to the lowest level in nearly four years, pressured by trade tensions between the United States and China and global economic uncertainty, data showed on Tuesday.

The IHS Markit Canada Manufacturing Purchasing Managers’ index (PMI), a measure of manufacturing business conditions, fell to a seasonally adjusted 49.1 in August, a three-month low, from 50.2 in July. A reading below 50 shows contraction in the sector.

“Canadian manufacturers reported a setback for business conditions in August, following the slight improvement seen during the previous month,” said Tim Moore, economics associate director at IHS Markit. “Concerns about the US-China trade war and rising global economic uncertainty were often cited by survey respondents.”

A measure of new orders fell to the lowest since December 2015, while the output index was in contraction for the fifth straight month and a measure of business optimism dropped to a three-and-a-half year low, according to IHS Markit.

The Bank of Canada has worried about the risks trade wars pose to the global economy. Economists expect the central bank to leave its benchmark interest rate on hold at 1.75% at Wednesday’s policy announcement but see increased likelihood of a cut by year-end, a Reuters poll showed last Thursday.

Data on Friday showed that Canada’s economy expanded in the second quarter at an annualized rate of 3.7%, the fastest pace since the second quarter of 2017. But economists cautioned that the latest growth figures were unlikely to ease the Bank of Canada’s worries.

Reporting by Fergal Smith; Editing by Chizu Nomiyama