Railway work stoppage to weigh on GDP, put pressure on inflation: economists

Economists say the work stoppage that began overnight at Canada’s two major railways will have a significant effect on the country’s economy.

Canadian National Railway Co. and Canadian Pacific Kansas City Ltd. locked out their workers after talks broke down with the union, bringing freight trains across the country to a halt.

CIBC senior economist Andrew Grantham wrote in a note that a one-week lockout would lower third quarter annualized GDP by about 0.4 percentage points.

The impact would more than double if the dispute stretches to two weeks because more sectors will be forced to curtail production.

Grantham says the work stoppage will also likely put some pressure on inflation, given that shipments of fresh and frozen foods were already halted leading up to the lockout. However, he says the upward effect on inflation would be much smaller than the downward effect on GDP.

BMO economists Robert Kavcic and Shelly Kaushik wrote in a note that, historically, these kinds of disruptions have ended relatively quickly through back-to-work legislation, but the economic impact mounts with each passing day.