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Rail barricades could cut Canadian GDP growth by 0.2 percentage points: RBC

Rail barricades could cut Canadian GDP growth by 0.2 percentage points: RBC
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Rail blockades could reduce Canadian GDP growth by 0.2 percentage points in the first quarter, and potentially more the longer they persist, according to a RBC Economics report.

Economic activity usually rebounds from temporary factors, pointing to the aftermath of the one-week Canadian National Railway Co. worker strike in November, according to the report published Friday.

“A count of idled train cars shows activity bounced back almost immediately after November’s strike ended. Other affected industries also tend to see a quick rebound — primary metal manufacturing, for instance, bounced back sharply in December,” RBC senior economists Nathan Janzen and Josh Nye wrote.

The November rail strikes impacted GDP by less than a tenth of a per cent.

The blockades started on Feb. 6 in solidarity with Wet’suwet’en hereditary chiefs, who oppose a Coastal GasLink pipeline project that is set to cross traditional Wet’suwet’en territory. CN Rail suspended service in eastern Canada on Feb. 13 in response to a blockade east of Belleville, Ont.

So far, the blockades have led to workers and propane shortages looming in Eastern Canada. Manufacturers and small businesses have warned of job losses and a sales slowdown if the blockades persist.

Douglas Porter, chief economist at BMO, said that eventually the damage will be reversed, and he didn’t think the blockades would affect the annual 2020 GDP numbers.

“But the other broader issue is what it could ultimately do to Canada’s reputation as a place to do business, and ultimately that might be the most potentially damaging aspect of this episode,” he said. Porter said that though Canada hasn’t really seen long-term damage on their global reputation due to a strike yet, other countries with extremely widespread protests have seen an impact before.

He also noted that there may be an impact on first quarter numbers depending on how long the blockades last. “If it drags out a few more weeks, I’m worried about an actual hit to the quarter.”

Douglas Porter, chief economist at BMO

RBC analysts noted the blockades are adding to a year-long trend of one-off negative surprises.

The analysts cited Alberta production curtailments, rail disruptions due to weather and derailments in early 2019, East Coast oil shutdowns, early winter in the Prairies, the Keystone pipeline shutdown due to a leak, the U.S. auto strike in September and October, the CN Rail strike, the permanent closure of the GM Oshawa plant and finally the coronavirus outbreak.

“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’?” they asked in the report.

Stephen Brown, senior Canada economist at Capital Economics, pointed to a dip in manufacturing sales as an indication of a weaker first quarter GDP rebound than anticipated. December sales volume fell by 0.4 per cent from November, and a rise was originally expected, he wrote in his weekly report on Friday.

Capital Economics reduced its forecast for first-quarter GDP growth to 1.5 per cent annualized rather than 2 per cent due to “the combined effects of the weaker data and the protests.”

Meanwhile, Prime Minister Justin Trudeau said after two weeks, the barricades on rail lines and other major transportation routes have to come down.

Speaking in Ottawa, he says the situation is unacceptable and untenable, with goods not moving and workers being laid off.

He said injunctions to clear tracks must be obeyed and the law must be upheld, and there’s no point making the same overtures to Indigenous leaders if they aren’t accepted.

What started as a protest in a remote part of Western Canada has flared into a crisis that is wreaking havoc as far away as Halifax

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