Canadian businesses, economists weigh the impact of Brexit vote

By Dan Healing, The Canadian Press

Canadian businesses, investors and economists confronted the prospect Friday of one of Canada’s biggest trading partners exiting the European Union and what it will mean for their operations and the economy at large.

Economists said the so-called Brexit vote will mean short-term volatility on world markets and a decrease in investor appetite for risk, prompting a likely strengthening of the U.S. greenback at the expense of the Canadian dollar.

On the other hand, they said interest rates in the United States probably won’t climb as previously expected, a stabilizing factor for the loonie going forward.

“This is bigger than just the U.K. and that is why it is having such ramifications globally,” said Pedro Antunes, deputy chief economist of the Conference Board of Canada.

“I think the concern in global markets is not just about Brexit, it’s not just about the U.K. deciding to leave, it’s really about the further political ramifications this can have within the U.K. or within the European Union itself, especially the monetary union, which is already strained.”

Trade in material goods between Canada and Britain is small and shouldn’t be overly affected by the vote, Antunes added. But Canadian companies that have set up offices or subsidiaries in Britain to gain access to the EU are probably going to take a “wait and see” approach before making any further investments.


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Energy analyst Greg Colman of National Bank Financial said the Brexit vote could lead to lower demand for oil and natural gas in Britain and Europe if their economies slow as expected. But he pointed out demand there has been falling for a decade and further deterioration won’t have much impact on the global energy demand picture.

He said a stronger U.S. dollar will actually benefit Canadian exporters of energy to the U.S. who pay most of their costs in Canada.

“Our (energy) supply-demand dynamics don’t really change that much, maybe a slight negative on the margin,” he said.

“The risk premium will increase, which will cause stocks to sell off, which makes good stocks cheaper and cheaper stocks are better to buy than more expensive stocks. And then on the currency side, you have this offsetting impact of the weaker Canadian dollar.”

RBC Economics said in a note to clients Friday that it expects a “muted” effect on the Canadian economy but the rise of risk aversion in markets will “put downward pressure on oil prices, government bond yields and the Canadian dollar.”

A TD economics report noted that Canada sends about three per cent of its annual goods exports to the U.K. It said the Canadian regions most likely to be hurt by reduced British demand are Newfoundland and Labrador, which ships about eight per cent of its goods exports there, and Ontario, which sends about six per cent.

Canadian companies issuing news releases in response to the Brexit vote said they don’t expect much disruption.

Aimia Inc., a Montreal-based company that runs the Aeroplan program in Canada and the Nectar loyalty program in the United Kingdom, said it doesn’t expect the Brexit vote or the weakness of the British pound to have a significant impact on its financial results in the medium term.

Winnipeg-based Great-West Lifeco — one of Canada’s biggest life insurance companies — said its European businesses “are resilient and we maintain significant financial flexibility.” The company’s Canada Life operation has had a presence in the United Kingdom since 1903. Other Great-West Lifeco units operating in the European Union include Irish Life in Ireland.

The “Leave” side won 52 per cent of the vote Thursday, over the objections of British Prime Minister David Cameron – who has announced he will resign.

The British vote to exit the EU had an immediate impact in the financial world, with the British pound plunging to its lowest level in three decades and world stock prices falling.

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