20 Jul 2016

The Brexit Effect: What Does It Mean for Canada?

European Union (EU), the Canadian dollar, the British pound and stock markets around the globe plummeted. The vote, known as Brexit, shocked the world and many experts forecast devastating financial consequences.
Many people may remember the sinking feeling when the 2008 financial crisis sent markets into a freefall. But now that fear and panic have calmed a bit. what does Brexit mean for your own investment portfolio, savings and financial future?

Brexit and Your Investments
The headline of Britain’s popular newspaperThe Sun, proclaimed “See EU Later!” the day after the vote. In an article by Fisher Investments, Brexit caused extreme market volatility in its immediate aftermath. Since then, the market has somewhat stabilized and most experts believe that many of the losses experienced at the outset will be recovered. Market uncertainty creates an opening for opportunistic investments. The question becomes “Can you keep your head and take advantage of the opportunities as they arise?” The key is to not let your emotions rule your portfolio decisions.
Brexit and Canada’s Housing Market
The long-term effects on the housing market depend on how both the Bank of England and the United States address interest rates. It’s possible the U.S. plan to raise interest rates in September may now be delayed.
The Bank of England may cut interest rates. But interest rates in Canada are already low and, after Brexit, unlikely to rise in the foreseeable future.
Vancouver and Toronto already have hot housing markets and prolonging low interest rates may add fuel to fire. Homebuyers may have difficulty in some cities finding affordable homes to purchase, and may see the value of their homes artificially skyrocket.
Whether you are buying or selling a home, use common sense and buy what you can afford.
Canadian Businesses
The most profound effect on Canadian businesses is likely to be felt by those doing business directly with UK companies. The UK accounts for only 2.5 percent of overall trade in Canada, however. For many companies, the impact is expected to be minimal.
Businesses dealing directly with the UK may feel repercussions from imports and exports price fluctuations. It is possible that Canada’s trade agreement with the EU, the Comprehensive Economic and Trade Agreement (CETA), could change or become null. Because of CETA, Canada does not pay tariffs on most goods entering Europe. Paying tariffs will most likely have a negative impact and reduce Canadian exports.
No Time for Panic
The effects of Brexit are cause for concern, but the dire predictions have simply not come true. Britain may have to form new trade agreements, but if those agreements are similar to those between the EU and other countries, not much will change. But if the predictions do come true, higher tariffs and trade barriers would very likely create a negative impact. It is impossible to accurately predict Brexit’s long-term impact. Only one thing is sure: now is not the time to panic.