TORONTO: Canadian factory activity grew at the slowest pace in six months in January, data showed on Monday, highlighting challenges to the economy as restrictions to contain the coronavirus pandemic threaten to slow activity.

The IHS Markit Canada Manufacturing Purchasing Managers' index (PMI) fell to a seasonally adjusted 54.4 in January, its lowest since July, from 57.9 in December but remaining well above the 50 threshold that marks expansion in the sector.

December's reading was the highest level for the PMI since the survey began in October 2010.

"Latest data signalled another month of expansion in the Canadian manufacturing sector," Shreeya Patel, an economist at IHS Markit, said in a statement. "Ongoing restrictions and border closures continue to pose a threat to exports and factory operations."

The new orders index fell to 53.6 from 57.2 in December, while the measure of employment was down to 51.3 from 55.8.

A surge in COVID-19 cases has led to lockdowns in a number of Canadian provinces. The Bank of Canada expects the economy to contract in the first quarter after rebounding sharply since the first wave of the virus in the spring.

Border restrictions and port congestion contributed to delivery times lengthening for the 17th straight month, with the suppliers' delivery times index nudging up to 34.0 from 32.7 in December.

The measure of future output fell to a six-month low of 60.2 from 64.1 but still showing that manufacturers were optimistic about output levels in the year ahead, hoping restrictions would ease.