(Bloomberg News circulated the following story by Frederic Tomesco and Hugo Miller on October 4.)
OTTAWA — North America may slip into a recession in 2008 as the U.S. housing slump spills into railroads and other industries, Canadian National Railway Co.’s finance chief said.
“The risks of a recession are real,” Chief Financial Officer Claude Mongeau told reporters after a speech in Montreal, the railroad’s hometown, today. Shipments of construction materials at Canadian National are down as much as 12 percent this year, he said.
Canadian National, the country’s largest railroad, depends on the U.S. for about one-third of revenue. Lumber producers and other forest-products makers represent about 22 percent of the company’s annual sales, Mongeau said.
The stock of unsold homes in the U.S. rose to a record of 5.1 million in August, forcing builders to further scale back projects and cutting demand for shipments of lumber, cement and steel.
“The question is, will this industry have a contagion effect on the entire economy, or will there be a quick pick- up?” Mongeau said. “The probability is still much higher that we will have good growth next year. But the risks of a recession cannot be ruled out.”
Concern about a wider economic slowdown prompted the U.S. Federal Reserve last month to cut interest rates, and it may do so again, economists say. KB Home, a Los Angeles-based homebuilder that has lost half its market value this year, last week reported a third-quarter loss on costs to abandon land purchases. The company predicted conditions may worsen through the end of the year and into 2008.
“At the moment, we’re caught with what is the probability of a recession occurring in the United States,” Former Federal Reserve Chairman Alan Greenspan said Oct. 2 at a briefing in London.
Canadian National fell 70 cents, or 1.3 percent, to C$55.15 at the 4 p.m. close of trading on the Toronto Stock Exchange.