BUSINESS

Will Brexit influence the Canadian economy?

The World is still in shock of the 2016 “Brexit” referendum. While some hail it as a big victory of the British public won by popular voting and others consider it the impending doom of the EU or Britain, Canada has to presume and prepare for any fallout of such a decision.

What is Brexit?

Named by mixing the words “British” and “exit”, Brexit represents the withdrawal of the UK from the European Union. On that referendum, 51.9% of UK voters chose to leave the EU. This is a scary move because the UK was one of the oldest members of the Union. The UK is scheduled to leave on March 29, 2019. The UK can halt this process and stay in the EU anytime up until that day.

What might change for the UK?

In the worst case scenario, a no-deal Brexit will leave UK citizens without guarantees on the right of residence in EU countries, and forced deportations on many UK citizens are bound to cause an economic catastrophe. Multinational companies with factories in the UK are bracing for losses, and food retailers and the NHS have started stockpiling supplies in case the EU stops the trade. Brexit-supporters claim that it wouldn’t be a doomsday everyone fears and that the UK will soon make new trade deals around the world.

Tourism, both to and from the UK, might diminish due to Visa applications and requirements.

Will Britain still trade with the EU?

It surely will, but as there are no existing free trade deals between them, they would trade under the World Trade Organization rules. This could mean that many industries would take a loss due to tariffs. The product standards, safety regulations, and sanitary regulations will also need to be negotiated between the UK and the EU, meaning that trade might be delayed.

What might change for Canada: a stronger US dollar?

With Britain leaving the EU, it might weaken the euro and the pound sterling. But why is this important for Canadians that use the Canadian dollar? The reason is that weakening of the pound and euro would cause strengthening of the US dollar. In turn, it will mean that everything Canada imports from the US will increase in price, and it might weaken Canada’s hefty exports to US. Canada might get lower profits on crude oil, petroleum, vehicles, natural gas and many other commodities.

And for the Canadian tourists, it will also mean that vacations in the US will be more expensive.

What about Canadian businesses with assets in the UK?

Many Canadians have the aim to acquire assets in the UK precisely because they gain access to the EU market. If Brexit succeeds, Canada can lose the benefits of the CETA Agreement with the EU. This deal removes most tariffs on Canadian exports to EU and allows Canadian firms to trade for higher profits.

In 2015, Canada exported products worth almost $16bn; this made the UK Canada’s third largest trading partner (first two being the US and China). If the UK stays in the EU, Canada will continue to sell its products to the EU market, but if it “brexits”, Canada and the EU will have to sign some new trade agreements. Such a lengthy process will undoubtedly damage the profit margins of Canada.

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