Blog Post

What Brexit Means for the Canadian Economy

The British referendum that took place just a few short weeks ago has already had its impact felt the world over. Soon after the United Kingdom decided to exit the European Union with a narrow 52% majority, the British pound and Canadian dollar plummeted, as did stock markets worldwide. The next few months will see increased fiscal conservatism as international markets wait to see how the dust settles from this unexpected decision that will have a huge impact on Europe’s economic outlook. Investors will be drawn to “safe” investments like government bonds and the steady U.S. dollar, which would further strengthen American currency and put downward pressure on oil prices. The decision will have serious implications for British exporters and European trade partners that must arrange new deals with the newly independent nation – but what does this mean for Canadians?

Brexit most immediately impacts Canada’s trade relationship with the United Kingdom and the Comprehensive Economic and Trade Agreement (CETA) with the European Union currently set to take effect late 2017. New independent trade agreements must be made between Canada and our third highest trade and investment partner, the United Kingdom, that was responsible for exporting nearly $16 billion worth of Canadian goods in 2015. These new trade deals can take decades to form, and the Canadian federal government has already said that they’re not willing to renegotiate the Comprehensive Economic and Trade Agreement in place with the European Union to compensate for Brexit.

CETA will be the most far-reaching deal this country has concluded in decades, and would eliminate duties on tens of thousands of products, covering more than 95 percent of everything Canada now sells to Europe. It would provide Canadian-based auto manufacturers, as well as beef and pork producers, with significant access to EU markets. However, with Britain exiting the European Union and subsequently the Comprehensive Economic and Trade Agreement, we’ll no longer be able to access their 60 million citizens that account for roughly 20% of the EU’s annual economic impact. Alongside a complicated trade situation, Canadians could very likely see negative impacts on investments tied up in the United Kingdom through retirement funds like the Canada Pension Plan. The CPP has $20 billion (approximately 7.5% of assets) in the UK, and financial instability in Britain could spell trouble for Canadian foreign investment.

While Canada will undoubtedly feel some effect from Britain’s exit of the European Union, we are by no means getting the worst of it. British exporters like Brammer, a British supplier of industrial gear for factories in Europe, have to scramble as share prices have fallen by two-thirds since voting day. Certain Canadian industries could actually benefit from the global market uncertainty, with interest rates set to hold at all time lows and mortgage rates falling accordingly. This is good news for our residential construction industry; further fuelling Canada’s strong domestic housing market. With any luck, our strong housing market could be a stabilizing factor during this time of great international uncertainty.

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