Canada’s economy is facing a significant threat as a railway stoppage continues to persist, causing concerns among economists and analysts. The potential impact of this stoppage on the nation’s GDP could be disastrous if it extends beyond a week. According to Pedro Antunes, chief economist at the Conference Board of Canada, a two-week strike could result in a $3 billion loss in nominal GDP this year, while a four-week strike could lower GDP by nearly $10 billion in 2024. This could also lead to an estimated 49,000 job losses in the economy.
The unprecedented halt in rail freight operations in Canada is considered both “growth-negative and inflation-positive” by Robert Kavcic, a senior economist at BMO Capital Markets. He predicts that the ongoing stoppage could chip away around 0.1 percentage points each week from economic growth. As a result, the economic impact could escalate significantly if the stoppage prolongs, translating into a weekly impact of over $2 billion in nominal GDP terms.
Canada’s economy has been facing sluggish growth this year, mainly due to high-interest rates and slowing consumer spending. With interest rate cuts and revised growth forecasts by the Bank of Canada, the economy’s outlook remains uncertain. Rising unemployment rates and a substantial amount of mortgage renewals next year further add to the economic strains.
Risks of Prolonged Stoppage
Derek Holt, head of capital markets economics at Scotiabank, warns that a prolonged rail strike could have a monthly drag on GDP, with exponential impacts beyond the three-week mark. Canada heavily relies on Canadian National Railway and Canadian Pacific Kansas City for transporting essential commodities and manufactured goods. Past experiences suggest that short-lived stoppages have minimal impacts, but an extended halt could result in significant economic damage.
Randall Bartlett, senior director of Canadian economics at Desjardins, points out that previous rail stoppages in Canada have not extended beyond a week or 10 days. The lasting impact of a stoppage largely depends on its duration. If history is any indication, a short-lived disruption may not have a significant economic consequence. However, a prolonged stoppage could exacerbate economic challenges and lead to inertia in the economy.
The ongoing rail stoppage in Canada poses a substantial threat to the economy, with the potential for billions of dollars in GDP losses and job cuts. The longer the stoppage persists, the greater the economic consequences could be. As policymakers and stakeholders work towards resolving the labor disputes, the focus remains on mitigating the adverse impacts of the rail stoppage and restoring normalcy to the country’s economic activities.