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Canadian services PMI hits 3-year low on uncertain outlook

FILE PHOTO: A grocery store in Toronto

By Fergal Smith

TORONTO (Reuters) - The downturn in Canada's service sector deepened in November as increased borrowing costs and worries about a potential recession weighed on activity, S&P Global Canada services PMI data showed on Tuesday.

The headline business activity index fell to 44.5 in November from 46.6 in October. It was the sixth straight month that the index was below the 50 threshold - below 50 indicates a deterioration in activity - and the lowest reading since June 2020.

"Market conditions are soft, characterised by squeezed budgets and a degree of reticence amongst market participants to commit to new business given an uncertain economic outlook," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.

The new business index fell to its lowest level since December 2020 at 45.5, down from 47.6 in October.

"High interest rates were again reported as a factor depressing market activity, and there are some concerns that the economy could drop into recession in 2024," Smith said.

The Canadian economy unexpectedly contracted at an annualized rate of 1.1% in the third quarter, avoiding a recession but showing growth stumbling ahead of a Bank of Canada interest rate decision on Wednesday.

The Canadian central bank is expected to leave its benchmark rate on hold after lifting it in July to a 22-year high of 5% to tackle inflation.

Signs of cooling inflation pressures were a bright spot in the data. The prices charged index dipped to 53.7, its lowest level since August 2021, while the input prices index was at 60.0, down from 62.5 in October.

The S&P Global Canada Composite PMI Output Index, which captures manufacturing as well as service sector activity, was also at its lowest level since June 2020, falling to 44.8 in November from 46.7 in October.

On Friday, data showed that Canada's manufacturing PMI fell to 47.7 in November, remaining in contraction for a seventh straight month.

(Reporting by Fergal Smith)