Brexit to crimp Canadian growth, rate cuts back on table

Fri Jun 24, 2016 4:03pm EDT
 
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By Fergal Smith and Leah Schnurr

TORONTO/OTTAWA (Reuters) - Canada's commodity-linked economy will suffer weaker growth because of Britain's vote to leave the European Union, which has put the prospect of Canadian interest rate cuts back on the table.

The vote is also seen delaying the ratification of a long-negotiated free trade deal with the EU, and fueling a housing market boom in Vancouver and Toronto that some worry is turning into a bubble.

Economists warned Brexit's biggest impact on Canada will come through its disruption of global trade and investment, which would weaken the price of oil and other Canadian exports.

That prospect drove the Canadian dollar down more than 2 percent on Friday, while Toronto's main stock index fell 1 percent and bond prices rose. Oil prices fell about 5 percent in New York. [CAD/] [O/R]

"Canada's direct exposure to the UK is fairly limited, but indirectly the financial volatility following the Brexit vote will put downward pressure on commodity prices and deepen the downturn in Canada's resource sectors," said William Adams, senior international economist at PNC Financial Services Group.

Canada sold C$16.6 billion ($12.81 billion) of goods, or about 3 percent of its exports, into the UK last year, making it the biggest buyer after the United States and China. Canadian companies, including Bombardier (BBDb.TO: Quote), also have major investments there.

TD Bank estimated the exit vote could shave about 0.5 to 1.0 percentage point off economic growth in Canada and the United States in the second half of the year.

TD said the Canadian provinces most likely to feel the brunt of reduced UK demand are Newfoundland & Labrador, which ships about 8 percent of its goods to the UK, and Ontario, which sends about 6 percent.   Continued...

 
Petro-Canada's Edmonton Refinery and Distribution Centre glows at dusk in Edmonton February 15, 2009.     REUTERS/Dan Riedlhuber/File Photo