Rail blockades could reduce Canadian GDP growth by 0.2 percentage points in the first quarter of this year and potentially more if a resolution isn’t found soon, says a report released by RBC Economics on Friday.
“The disruptions add to a growing list of transitory or one-off factors that have impacted Canada’s economy in the past year. Economic activity should eventually rebound from temporary factors, but downside surprises are more likely than unexpectedly strong growth at this stage in the economic cycle,” said the RBC analysis.
“It’s been out of the frying pan into the fire for Canada’s rail sector. Just three months after a week-long strike reduced rail transportation activity to a three-year low, the industry is facing new challenges with protests and blockades dramatically curtailing rail traffic. With service interruptions dragging on for two weeks now, both commercial and passenger operators have announced layoffs and complaints from the business community are growing louder.”
The report said November’s rail strike caused a temporary slowdown in a number of industries and Statistics Canada noted primary metal manufacturers among the many establishments impacted by rail disruptions. The overall economic impact was still relatively small and RBC said the strike reduced (annualized) fourth quarter GDP growth by 0.1 percentage points.
“The disruptions from the blockades have already been longer, and the negative impact will probably be larger. The impact of the current disruption will depend on how long the blockades last. But as of now, we estimate Q1/20 GDP growth will be reduced by about 0.2 percentage points (relative to our latest forecast of 1.4 per cent). That impact will continue to grow the longer rail traffic remains constrained,” said RBC.
The report said February’s rail disruptions aren’t the only temporary factor that has impacted Canada’s economy of late.
“From energy sector curtailments/shutdowns and labour disruptions last year to COVID-19 (Coronavirus) early this year, the economy has been subject to a number of transitory shocks in recent quarters. Other one-off events, like the closure of GM’s Oshawa plant, represent a more permanent hit to economic output,” said the report.
“By our count, Q1 2020 will be the fourth of the last five quarters Canada’s economy has been subject to net-negative shocks. The frequency of these one-off hits eventually begs the question that if growth doesn’t actually bounce back, can these disruptions still be called “transitory”? To be clear, we do expect those earlier drags on the economy (aside from permanent auto closures) will be reversed and make a net positive contribution to top-line GDP growth in the coming quarters. But it’s worth noting that in the late stages of the economic cycle, we’re more likely to see downside rather than upside surprises in GDP growth.
“Notwithstanding slower activity in the second half of last year, labour markets remain tight in most provinces and job shortages continue to be a key concern for businesses. Against this backdrop, it’s simply more difficult for the economy to grow at an above-trend rate—by extension, that limits the scope for stronger-than-expected growth.”
Mario Toneguzzi is a business reporter in Calgary.
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