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Canada's Manufacturing Growth Is "Somewhat Illusionary," Has Downside Risks, Says S&P Global Economist

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Canada's manufacturing sector registered a solid expansion during May, underpinned by rises in both output and new orders, plus the best increase in employment since October 2024, said Paul Smith, Economics Director at S&P Global Market Intelligence.

Earlier Monday, the seasonally adjusted S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) remained in positive territory during May for a second successive month. Although falling to 52.9, from 53.3 in April, the rate of growth remained "solid" and above its historical average.

Firms reported a general upturn in demand and success in securing new customers, despite ongoing anecdotal evidence that tariffs and the uncertainty caused by the war in Iran were weighing on product markets, noted Smith.

The uplift in sector performance is likely on balance to have been driven by client efforts to secure goods, given worries over price increases and product availability, he added. These were certainly noted as reasons for manufacturers' own efforts to build buffer stocks in May: respondents anticipated elevated inflation and supply chain fragility in the months ahead, which will build on the already steep rises in operating expenses and lengthening lead times highlighted by May's survey.

"This leads to the rather somber conclusion that current growth is somewhat illusory and laced with downside

risks, a sentiment that manufacturers themselves have also reached as confidence in the outlook eased back in

May and remained well below par," stated Smith.

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