War‑driven jitters kept firms on the sidelines and borrowers in wait‑and‑see mode
Canada’s services economy remained under pressure in March, adding another layer of uncertainty to an already cautious mortgage market. New survey data showed activity and new business in services both in decline for a fifth straight month, even as headline readings nudged off recent lows.
The S&P Global Canada Services PMI Business Activity Index rose to 47.2 in March from 46.5 in February, its highest level in five months but still below the 50 threshold that separated expansion from contraction.
Business services and transport firms recorded some of the steepest falls in output, pointing to softer demand from corporate clients and trade‑exposed sectors.
S&P Global linked much of that weakness to the war in the Middle East, which has driven up oil prices, pushed fuel and transport costs higher and kept clients from committing to new projects.
The survey showed new business remained in contraction for the 16th consecutive month, while employment fell for a seventh, as firms opted not to replace leavers.
“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.
“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 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.
A weaker backdrop, but rates still look steady
Amid the softer growth, there is no clear signal of imminent rate relief. The S&P Global Canada Composite PMI Output Index, which blended manufacturing and services, stood at 47.6 in March, its fifth month below 50, underscoring a private‑sector slowdown even before the full impact of higher energy costs had fed through.
Bank of Canada officials already warned that the Iran war would push inflation higher in the near term through higher energy prices, even as overall growth remained subdued.
The central bank kept its policy rate at 2.25% in March and emphasized that heightened geopolitical and trade uncertainty broadened the range of possible outcomes for the outlook.
Geopolitical shocks are reshaping Canada’s rate outlook.
— Canadian Mortgage Professional Magazine (@CMPmagazine) March 31, 2026
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Mortgage market stays in wait‑and‑see mode
That combination of weaker activity and sticky inflation has kept the mortgage market on edge.
An “uncertain” Bank of Canada path has left many lenders and borrowers in a wait‑and‑see stance, with economists expecting policy rates to remain on hold through 2026 even as geopolitical shocks played out.
Tony Stillo, director of Canada economics at Oxford Economics, said he still expects the central bank to remain on hold this year, arguing that the Iran conflict would likely add only a modest, temporary bump to Canada’s inflation profile if it proved short‑lived.
He described the impact on mortgage rates as contained so long as bond markets do not price in a longer, deeper energy shock.
Geopolitical strife and trade tensions have already weighed on housing demand, as affordability concerns and higher carrying costs encouraged many would‑be buyers to delay decisions and more existing borrowers to prioritize cash‑flow flexibility at renewal.
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