The Treasury Board and the union representing 122,000 striking workers resolved their differences relatively quickly, but perhaps not quickly enough to prevent their work stoppage from tipping economic growth into negative territory, Bay Street economists said.
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Economists estimate that the eight-day work action, which began on April 19, will reduce gross domestic product by 0.1 to 0.3 percentage points in April. The economy was already slowing, so that could be enough to drive total output down this spring, Douglas Porter, chief economist at BMO Capital Markets, said in an email.
Of course, the economic losses entailed by the strike could be recouped in May, when PSAC members return to work with higher salaries. “That blow should be reversed more or less completely this month,” Stephen Brown, an economist at Capital Economics, said in an email. negative.”
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A little less growth could help the Bank of Canada bring inflation under control. The year-on-year increase in the consumer price index peaked at 8.1 percent in June 2022, the highest level in four decades. Inflation has been steadily declining since then, but policymakers have made it clear they are concerned that wage increases based on last year’s cost-of-living increase could prevent inflation from falling back to the two percent target.
PSAC protesters strike around government buildings in Ottawa on April 28. Photo by Julie Oliver/Postmedia
Median hourly wages rose 5.2 percent in March, according to the latest data from Statistics Canada. That was higher than general inflation, which rose by 4.3 percent in March.
But it was only the second time in this inflationary streak that wages have exceeded the consumer price index. Nathan Janzen, an economist at Royal Bank of Canada, said wages have been catching up, one of the reasons the PSAC deal doesn’t worry him too much.
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“Inflation is outpacing wage growth, especially for unionized workers. So so far we’ve really seen wages being higher after inflation and not the other way around,” Janzen said in an email. “The outcome of these negotiations will very likely be used as a benchmark for other unions, so we should expect to see more than usual wage increases as previous contracts that failed to anticipate inflation over the past few years are being renegotiated.”
We can expect more than usual wage increases
Nathan Janzen, Economist, Royal Bank of Canada
Capital Economics’ Brown said he didn’t think the deal would fuel inflation as it involves a small number of workers as a percentage of total employment, about 0.5 percent of Canada’s workforce. “From the (central) bank’s perspective, the most important point is that the wage agreements for this year, 3.5 percent, and for next year, 2.25 percent, are in line with the bank’s inflation target of 2 percent,” he said. he said. .
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Charles St-Arnaud, chief economist at Alberta Central, said the wage increase is “much less inflationary than initially demanded”. Wages are also expected to rise less than inflation this year. Initially, PSAC aimed for a wage increase of 13.5 percent over three years.
“Also, by spreading wage increases over four years instead of three years, you spread inflationary pressures,” said St-Arnaud. “This is much better than if all the modifications had been done on the front end.”
Still, BMO’s Porter said concerns remain that this deal could lay the groundwork for future contract negotiations, complicating the Bank of Canada’s inflation-fighting efforts. “It looks like this deal may make the Bank of Canada’s job of bringing inflation down to two percent and keeping it there a little bit more difficult,” he said.
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The extent to which the strike slowed growth could determine the central bank’s response. Statistics Canada issued a preliminary estimate for March GDP on April 28, predicting a 0.1 percent decline. Statistics Canada said the economy grew 0.1 percent in February.
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Marc Ercolao, an economist at Toronto-Dominion Bank, noted that April’s GST rebate could offset the negative impact of the strike. Alberta Central’s St-Arnaud is also skeptical that the strike will cause a drop. While there could be “resistance” to the strike, “some quick estimates at this point suggest flat growth in the second quarter,” he said in an email. “It would take a lot more weakness in the rest of the economy to see negative growth in the second quarter.”
