TORONTO (Reuters – Canadian manufacturing activity grew at a slower rate in April because of the conflict in Ukraine. However, this was offset by continued strong demand.

The S&P Global (NYSE:) Canada Manufacturing Purchasing Managers’ Index (PMI) fell to a seasonally adjusted 56.2 in April, pulling back from a survey-record high of 58.9 in March. The sector is experiencing growth if the reading exceeds 50.

“Demand conditions were supportive and continued to underpin a solid improvement in operating conditions,” Shreeya Patel, an economist at S&P Global, said in a statement.

But, the capacity constraint has persisted and companies look to be facing labor shortages. The recent geopolitical developments, particularly in the area of fuel and raw material, have also contributed to rising costs.”

Russia’s invasion of Ukraine prompted Western sanctions. This has caused oil supplies to be disrupted around the world, pushing up prices. Moscow describes its Ukraine operation as “special military action”.

As firms complained of material scarcity and truck shortages or delays in freight, backlogs rose for the 21st consecutive monthly.

While the employment index rose to 54.5 in March from 53.2, it remained elevated due to higher fuel and transportation costs.

Although firms were optimistic about future output growth, optimism waned after March. It was lower than the average series.