Four risks that could tip Canada’s economy into a downturn

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All things considered, Canada’s economy has held up pretty well and with the Bank of Canada on the path to lower interest rates, everything should be OK, right?

Well, fingers crossed, because according to a recent risk report from Moody’s Analytics a number of threats still bubble below the surface that could derail the soft-landing scenario.

Labour strikes

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Moody’s flags labour disputes as a rising risk for Canada, and there have certainly been plenty of those in the headlines lately.

First the railway strike that threatened to “paralyze the country” last month. Ottawa stepped in quickly to end this with binding arbitration, but this was followed shortly after by pilots at Canada’s biggest airline threatening to walk out over pay.

A strike at Air Canada would have ground 670 daily flights and 110,000 daily passengers, along with air freight, with one economist estimating the impact to the economy at $1.4 billion if it went on for two weeks.

The airline and business groups called on Ottawa to once again step in, but a last-minute deal averted the strike.

“These events echo the teacher, healthcare and public sector worker strikes in 2021 and 2022 and the spread of the U.S. auto workers’ dispute in 2023,” wrote Moody’s economist Charlie Houston.

“While inflation is cooling, wage earners evidently still feel the pinch from the increase in prices over the last few years.”

Supply-chain stress

This risk has fallen slightly on Moody’s scale because of the quick action by government and business to head off disruption.

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Though the federal government forced arbitration between rail workers and the railways in late August, the threat remains as the rail union is fighting for the right to strike in court.

Moody’s estimates that the economic impact of a nationwide rail strike would cost the Canadian economy $341 million a day or 4 per cent of daily gross domestic product.

Industries such as agriculture, mining, paper and wood, exporters and motor vehicles that rely on rail freight would be hit the hardest.

“Supply-chain stress could reignite inflation pressures — particularly unwelcome as inflation is only just falling back within the Bank of Canada’s target range,” said Houston.

Limp labour market

Moody’s sees the weakening job market as another rising risk. Canada’s unemployment rate rose to 6.6 per cent in August, the highest level since 2017, outside of the pandemic.

There was a slight uptick in new jobs but it wasn’t nearly enough to keep up with large gains in the population.

“A broader downturn in the labour market — extending beyond pockets of weakness such as higher unemployment among recent immigrants — could further depress consumer demand and pressure firms into cutting back on hiring to protect profits,” said Houston.

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Global pandemic

Though the COVID-19 lockdowns have faded into memory, Moody’s sees pandemics as a rising risk.

“The possibility of a more elusive and deadly strain of the novel coronavirus, or an unaddressed surge of another pathogen, remains a major threat,” said the report.

The World Health Organization last month declared the mpox outbreak in Africa a public health emergency of international concern.

“While Canadians have likely learned how to better live and work during a pandemic from the experience of 2020, a repeat would have a significant adverse economic impact on an economy still on fragile footing,” said Houston.

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The United States isn’t the biggest gold buyer these days but it certainly has the biggest stockpile in the world — by a long shot.

Most of the gold is stashed in deep storage at — you guessed it — Fort Knox in Kentucky. The United States Bullion Depository here holds more than 147 million ounces, all in gold bars. West Point, New York is the second location where the U.S. Mint keeps 54 million ounces and Denver, Colorado the third, with 43.8 million ounces.

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At today’s record prices the U.S. gold reserve is valued at more than US$657.48 billion.

• Today’s Data: United States existing home sales, current account balance
• Earnings: FedEx Corp., Lennar Corp., Darden Restaurants Inc.

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Want to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his mortgage rate page for Canada’s lowest national mortgage rates, updated daily.

Today’s Posthaste was written by Pamela Heaven, with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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