Re-opening should more than offset wildfire disruption

The wildfires in British Columbia appear to have been more disruptive than we first thought, but GDP should still rise this month thanks to the easing of the coronavirus restrictions. The volume of rail freight carloads carried across the country plummeted at the start of the month and have remained weak since then, as the wildfires in British Columbia have closed some key rail routes into the Port of Vancouver. The decline in rail freight has been even more pronounced than during the early 2020 rail blockades and suggests that rail transportation GDP could fall by as much as 10% this month, with knock-on effects on some industries including farming, mining and manufacturing. That said, the direct effect of even a 10% decline in rail transportation would still be just 0.05% of total GDP and the overall impact of the disruption seems unlikely to be more than 0.2% of GDP. That should be more than offset by the gains from the re-opening of the economy, with the surge in restaurant visits alone pointing to a rise in GDP of 0.2%. Nevertheless, the wildfire disruption means the risks to our forecast for third-quarter GDP growth of 8.5% annualised now lie to the downside, and the further disruption to supply chains could lead to more upward pressure on inflation over the rest of the summer than we currently expect.