Canada’s economy faces potential billions in losses if the current rail stoppage, which began on Thursday, continues for an extended period. This disruption, caused by a lockout of workers affiliated with the Teamsters union by Canadian National Railway (CNR) and Canadian Pacific Kansas City (CPKC), could lead to increased unemployment and higher consumer prices, according to economists and analysts. If the stoppage lasts less than a week, the economic impact may be minimal. However, if it drags on, the consequences could be severe.
Pedro Antunes, chief economist at the Conference Board of Canada, warned that a two-week strike could result in a $3 billion loss in nominal GDP for the year, with a four-week strike potentially reducing GDP by nearly $10 billion. This situation could also lead to approximately 49,000 job losses. Robert Kavcic, senior economist at BMO Capital Markets, described the simultaneous stoppage of most of Canada’s rail freight as “growth-negative and inflation-positive.” He estimated that the stoppage could reduce economic growth by about 0.1 percentage points each week, translating to a weekly impact of over $2 billion in nominal GDP terms.
Canada’s economic growth has already been sluggish this year, with interest rates at a near 23-year high before the Bank of Canada began cutting rates in June. The bank’s recent rate cuts have shifted focus toward stimulating economic growth rather than just controlling inflation. The first-quarter GDP growth was 1.7%, falling short of the bank’s April forecast, which was subsequently lowered from 1.5% to 1.2% for the year.
Rising unemployment, which reached a 30-month high last month, and the upcoming renewal of around C$300 billion ($220.78 billion) in mortgages next year are expected to keep economic conditions challenging. In this context, a prolonged rail stoppage could exacerbate economic stagnation. Derek Holt, head of capital markets economics at Scotiabank, noted that a strike lasting one to three weeks could drag GDP down by 0.1%-0.2% monthly, with the impact increasing exponentially if the stoppage continues beyond three weeks.
Canada relies heavily on CN and CPKC for shipping essential commodities such as grain, fertilizers, chemicals, and automobiles. The annual rail freight cargo in Canada amounts to over C$380 billion, with the majority transported on CN and CPKC tracks. Randall Bartlett, senior director of Canadian economics at Desjardins, pointed out that previous rail stoppages have generally been short-lived, lasting less than a week or ten days. If the current stoppage is similarly brief, its economic impact may be limited. However, an extended stoppage would likely cause significant economic damage.
