Home Editor's Pick Prolonged Rail Strike Could Derail Canada’s Economy, Warn Analysts

Prolonged Rail Strike Could Derail Canada’s Economy, Warn Analysts

A two-week rail strike would result in a $3-billion loss in nominal GDP this year, and a four-week strike could lower GDP by nearly $10 billion in 2024, said an economist at a Canadian think tank.

OTTAWA: Canada’s economy could shrink by billions of dollars this year if a rail stoppage that began on Thursday continues for weeks, and the knock-on effects would swell jobless numbers and consumer prices, warned economists and analysts.

However, the economic impact could be minimal if the stoppage lasts less than a week, they said.

Stressing the need for a quick solution, Prime Minister Justin Trudeau told reporters in Quebec Thursday that his government would soon announce how it plans to tackle a nationwide freight rail stoppage.

Canada’s two biggest freight rail operators Canadian National Railway and Canadian Pacific Kansas City locked out workers affiliated with the Teamsters union on Thursday, after both companies and the union failed to conclude labor deals.

The rail companies say they were forced into the lockouts to avoid strikes at short notice. With lockouts telegraphed in advance, CN and CPKC had time to give clients advance notice to redirect their cargoes, ensure phased network shutdowns, and to ensure hazardous goods were not stranded.

“If you have a stoppage that is extended, that drags out, that could be really devastating,”  said Pedro Antunes, chief economist at the Conference Board of Canada, an economic think-tank.

A two-week rail strike would result in a $3-billion loss in nominal GDP this year, and a four-week strike could lower GDP by nearly $10 billion in 2024, he said, adding it could result in 49,000 job losses in the year.

The world’s second-largest country by area, Canada relies heavily on CN and CPKC to ship grain, fertilizers and other commodities, along with manufactured goods such as chemicals and automobiles.

The total rail freight cargo hauled annually in Canada tops C$380 billion, with the vast majority moving on CN and CPKC’s tracks.

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The unprecedented simultaneous stoppage of the majority of Canada’s rail freight is “growth-negative and inflation-positive,” said Robert Kavcic, senior economist with BMO Capital Markets.

Kavcic expects that the stoppage could shave around 0.1 percentage points each week from economic growth, “but the impact could build the longer it drags on,” he warned. This translates into a weekly impact of over $2 billion in nominal GDP terms.

Economists have said that rising unemployment, which hit a 30-month high last month, and a wave of around C$300 billion ($220.78 billion) in mortgage renewals next year, will keep economic conditions strained.

Amid all this, a protracted rail stoppage could lead to economic inertia, warned  economists.

Derek Holt, head of capital markets economics at Scotiabank said that a one- to three-week strike could have a 0.1%-0.2% monthly drag on GDP, but its impact would rise
exponentially with each passing day beyond three weeks.

Randall Bartlett, senior director of Canadian economics at Desjardins, said past rail stoppages have not usually continued beyond a week or 10 days.

“If it is short-lived like (in the) past, the impact is minimal,” he said, adding a stoppage would do significant economic damage if it continues beyond a few weeks.
(REUTERS)

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In a career spanning over three decades and counting, I’ve been the Foreign Editor of The Telegraph, Outlook Magazine and The New Indian Express. I helped set up rediff.com’s editorial operations in San Jose and New York, helmed sify.com, and was the founder editor of India.com.

My work has featured in national and international publications like the Al Jazeera Centre for Studies, Global Times and The Asahi Shimbun. My one constant over all these years, however, has been the attempt to understand rising India’s place in the world.

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