By Max Sato
(MaceNews) – The Canadian economy appears to have emerged little hurt overall from a temporary blockade of its key US trade route caused by a truckers-led protest against anti-Covid mandates, but the government failure to prevent occupations of crucial border crossings and the national capital has tarnished the country’s reputation as an efficient place to do business.
Canada’s gross domestic product grew an impressive 0.6% on the month in November, taking the total domestic output to pre-pandemic levels. The data showed resilience to the impact of a major flood in British Columbia, which paralyzed domestic distribution, triggered a local natural gas pipeline shutoff as a precaution and aggravated port congestion at Vancouver, the Pacific gateway.
Even with estimated zero growth in December, the GDP for the final quarter of 2021 is projected by Statistics Canada to have expanded a preliminary 1.6% on the quarter, which would translate into an annualized rate of over 6%, topping the Bank of Canada’s latest estimate of 5.8% for October-December.
In the New Year, the drag from yet another spike in coronavirus infections sparked by the more contagious Omicron variant seems to have slowed economic activity in major economies. But StatsCan’s early estimate points to a 2.4% rebound in January from a slightly better-than-expected 1.8% drop in December, official data released Friday showed.
Anti-Mandate Protests
Then came the truckers’ protests against official anti-Covid rules including mandatory vaccination of federal government employees, cross-border truckers and other workers. The “Freedom Convoy” protesters have occupied the core of the nation’s capital, Ottawa, for three weeks. Their numbers have dwindled following police warnings and arrests.
A potential harm to the economy emerged at the US border in Ontario, the industrial heart. Canadian automakers and other firms called for an end to the truckers’ blockades, which have choked off shipments to and from the US, a key export market and a supplier of parts and goods.
The Ambassador Bridge connecting Windsor, Ontario to Detroit was reopened on Sunday after a week-long blockade. The reopening followed a state of emergency declared in the province of Ontario and an injunction granted by an Ontario judge to remove protesters.
“Because that lasted for a little less than a week, I don’t believe it will make a lasting hit on growth or inflation,” said Douglas Porter, chief economist at BMO Financial Group. “However, had it dragged on any longer, or spread to other bridges, I suspect we would have been looking at very serious economic consequences, both in terms of weaker growth and higher inflation.”
Impact on Overall Economy Seen Limited
Businesses rushed to cushion the impact of the blockade. Factories that reduced output due to the aggravated logistical challenges are expected to play catchup, just as they have tried to cope with the pandemic-caused supply chain disruptions.
“Some materials were being re-routed through Sarnia (in southern Ontario), or by rail, and I suspect the automakers will be able to make up for any lost production in the past two weeks,” Porter said.
Avery Shenfeld, chief economist at CIBC Capital Markets, agreed that it would have been more of a threat if the border blockades had lasted a bit longer.
“While it might take a decimal place off February GDP, there’s enough time to make up for lost output that the impact on the first quarter will be very small and hard to pick out at the national level,” he said.
Protesters had also shut down smaller border crossings in the provinces of Alberta and Manitoba last week and blocked the Pacific Highway border in British Columbia over the weekend. Police made arrests and seized weapons from a fringe group in Alberta.
The Canadian Trucking Alliance (CTA) said in a statement on Jan. 22 that the vast majority of the Canadian trucking industry is vaccinated, and that the CTA “does not support and strongly disapproves of any protests on public roadways, highways, and bridges.”
First Use of Emergencies Act
Prime Minister Justin Trudeau on Monday invoked the national Emergencies Act for the first time ever, which gives the federal government temporary 30-day extraordinary powers to help end blockades at the borders.
Trudeau told a news conference that his government will use “fresh tools” under the law that are “time-limited and geographically specific” and aimed at protecting Canadians from “illegal blockades,” which he said are weakening the country.
The Emergencies Act replaced, in 1988, the controversial War Measures Act, which was invoked in 1970 by then Prime Minister Pierre Elliott Trudeau, Justin Trudeau’s father, to counter attacks by a militant Quebec separatist group called FLQ.
Trudeau said he is “not calling in the military as a solution” to the situation. The RCMP (Royal Canadian Mounted Police), the federal police service, will support municipal and provincial police forces in dealing with the illegal occupations, he added.
In an online survey of 1,622 Canadian adults conducted by the Angus Reid Institute from Feb. 11-13 and released Monday, nearly three-quarters of Canadians (72%) said the time had come for protesters to “go home, they have made their point.” Nearly 70% of the respondents either believed local police needed to step in and send people home (45%) or that the military should be summoned (23%).
At the same time, the same survey showed that two-thirds (65%) said Prime Minister Trudeau’s comments and actions had worsened the situation, while two-in-five (42%) also criticized Candice Bergen, interim leader of the official opposition Conservative. The Ottawa police and Ontario Provincial Police also came under fire, with more respondents saying they had worsened rather than helped resolve the situation. Both leaders called on the protesters to leave, saying they had been “heard.”
Sluggish Approval Rating
Trudeau, who took office in 2015, has been struggling to shore up public support, with his approval rating slipping to 40% in February from 42% in January, hovering over his lowest point of 33% hit in February 2020, according to Angus Reid. His disapproval rating rose to 57% this month from 53% last month.
Trudeau led his Liberal Party to a decisive victory in a 2015 general election for the House of Commons but the party lost a majority in a 2019 vote. He won a third mandate in another election in September 2021 but failed to restore a majority.
The government has been either cautious about removing the anti-mandate protesters from illegally occupied areas or incapable of putting together effective responses at an earlier stage.
What is tricky for the Trudeau government is that the protests have been joined by other Canadians feeling fatigue, frustration, and isolation from on-and-off restrictions around the pandemic. Officials have also expressed concern that some police officers have not been enforcing the mandates as expected.
“The protest in Ottawa, while harmful to the local downtown economy, and very high-profile, likely will not have a major impact on the broader Canadian economy,” BMO’s Porter said.
“The other issue to be concerned about here is the possible damage to Canada’s reputation, probably more so from the border blockades,” he warned. “Again, because they did not last long, it may not do lasting damage, but it certainly wasn’t helpful to our image as a good place to do business.”
Rate Hikes Coming Amid Rising Inflation
For Canadian households and businesses, the global supply chain disruption and labor shortages caused by the pandemic continues to be a headwind as the latest data released Wednesday showed that the annual consumer inflation rate rose to a 31-year high of 5.1% in January from 4.8% in December.
Excluding the volatile factor of gasoline, the CPI still rose 4.3% from a year earlier, the fastest pace since the introduction of the index in 1999.
These figures are well above the Bank of Canada’s 2% target in a control range of 1% to 3%. The bank is widely expected to start raising the policy rate from the current record low level of 0.25% in its next policy decision on March 2, to be followed by more increases at least to unwind emergency three 50-basis point rate cuts in March 2020 that lowered the target for overnight lending rates from 1.75% to 0.25%.
Living with Pandemic
Seeking a delicate balance between ensuring public health and supporting economic recovery from the pandemic slump, provincial leaders are easing restrictions in varying degrees.
Ontario plans to lift capacity limits on businesses and social gatherings and end its proof-of-vaccine requirements on March 1 while keeping masking requirements in place for now, citing a steady decline in Covid-related hospitalizations.
As the province is reopening the economy, Premier Doug Ford said people should continue personal hygiene practices to protect themselves but warned, “We also know that it doesn’t matter if you have one shot or 10 shots, you can catch Covid-19.”
“We are done with it,” Ford told reporters on Tuesday, referring to the public’s frustration over Covid restrictions limiting economic activity. “Let’s just start moving on cautiously.”
British Colombia eased some Covid restrictions this week, allowing bars and night clubs to reopen and events to operate at full capacity, but masks will remain mandatory at indoor public spaces and proof of vaccination will continue to be required for entering restaurants and sporting events.
Provincial Health Officer Dr. Bonnie Henry said BC is shifting its focus to a long-term Covid-19 management strategy, maintaining immunization to protect seniors and people with immune compromising conditions while moving into recovery in a transition phase.
“We are not over with this pandemic in British Columbia, in Canada or globally.” Henry told reporters on Wednesday. “And we know that there will be continuing pressure on this virus to mutate into a new variant that may evade some of the immune benefits that we have right now.”