Moody's names simmering threats that could push Canada's economy into recession

Labour disputes are a growing risk for Canada following recent strikes and strike threats.

Supply chain strains could add to inflationary pressures even as they fall back into the Bank of Canada's target range. (Source: The Canadian Press)

Canada is facing four risks that could push its fragile economy into recession.

Although the country's economy is still performing quite well, with the country's central bank (BoC) continuing to consider accelerating the pace of interest rate cuts to avoid inflation falling further below its 2% target, a report by credit rating agency Moody's has predicted a number of looming threats that could derail the country's soft landing prospects.

These include risks such as labor strikes, supply chain strains, weak labor markets and global pandemics.

Moody's said that labor disputes are a growing risk for Canada after recent strikes and strike threats. A rail strike that threatened to paralyze the country last month forced Ottawa to step in to end it.

However, shortly after, pilots of the country's largest airline, Air Canada, threatened to strike to demand higher wages and other benefits. If a strike at Air Canada took place, it would have disrupted about 670 flights and affected 110,000 passengers a day, along with other air transport operations. The economic impact was estimated at about 1.4 billion CAD (1.03 billion USD) if it lasted about 2 weeks, and fortunately the incident was resolved at the last minute.

Moody's economist Charlie Houston said that while inflation is cooling, wage earners are clearly feeling the pinch from rising prices over the years in Canada, adding that the strikes will put strain on supply chains.

The Canadian government has had to intervene, but the threat remains as the rail union fights for its right to strike in court. Moody's estimates the rail strike will cost the economy about $341 million CAD per day, or 4% of the country's GDP.

Supply chain strains could add to inflationary pressures even as they fall back into the BoC's target range, Mr. Houston said.

Another growing risk is a weakening job market. Canada’s unemployment rate rose to 6.6% last month, its highest level since 2017. While job creation has picked up, it hasn’t been enough to keep up with strong population growth.

A larger contraction in the labor market could further dampen consumer demand and pressure companies to cut hiring to maintain profitability, Moody's experts said.

In addition, the pandemic is still considered by the credit rating agency as a growing risk even though the lockdown caused by Covid-19 has receded into memory. The company's analysis report said that the possibility of a new strain of SAR-CoV2 virus that is difficult to control and causes greater mortality, or the unresolved rise of another pathogen, remains a major threat.

Last month, the World Health Organization (WHO) declared the monkeypox outbreak in Africa a public health emergency of international concern.

While Canadians may have learned to live and work better from the experience of the 2020 pandemic, a repeat of the pandemic would have a negative impact on the country's fragile economy, Houston said.

Source: https://baoquocte.vn/moodys-diem-danh-nhung-moi-de-doa-am-i-co-the-day-nen-kinh-te-canada-vao-vong-suy-thoai-287122.html