By now, you’ve heard the news that the UK voted to leave the European Union with a narrow 52% majority. Immediately following the news, the value of the British pound dropped like a stone and worldwide economies have descended into uncertainty. Long lasting effects of the so-called Brexit remain to be seen, though the prognosis so far isn’t positive.
How does this monumental shift in European politics affect Canadians? Below are some of the ways that Brexit may impact job opportunities in Canada.
1. canadian businesses will rethink their trade strategy
In 2015, the UK was Canada’s third largest trading partner, receiving 3% of Canadian exports, worth almost $15 billion. Brexit means losing out on the benefits of the EU’s Comprehensive Economic and Trade Agreement (CETA), which eliminates tariffs on these Canadian imports. Negotiating a new trade agreement could take years and be far less favourable.
How does this affect Canadians? If the cost of exporting goods goes up, Canadian jobs may be cut in response to rising costs. A drop in profitability could also impact foreign investment in Canadian businesses.
2. financial instability cuts canadian businesses’ growth
With the British pound in flux, Canadian companies that are invested heavily in Britain will see lowered returns. Great Britain is one of Canada’s largest targets for foreign investment. Statistics Canada reports Canadians poured $69 billion into Britain in 2014. Returns on these investments are uncertain at best.
How does this affect Canadians? If investments in Britain are no longer profitable, Canadian companies with investments or locations in Britain will be affected. Worst case scenario: Canadian funding in Britain is pulled and British locations are closed. Both British and Canadian jobs will be affected. The growth of Canadian businesses will also be cut at the knees.
3. the canadian pension plan will be affected
The Canadian Pension Plan (CPP) has 7.5% of its assets invested in Britain, or $20 billion. The drop in the value of the British pound has caused a significant drop in the value of these funds. It remains to be seen how Brexit will affect the long term value of these funds. Additionally, the values of worldwide currencies will likely drop in response, including in Canada itself.
How does this affect Canadians? If the value of CPP investments drop, it will impact Canadians’ retirement plans. Smaller returns on pensions and retirement funds mean less money for retirees. This may force some Canadians to reconsider the age at which they can feasibly retire. The Canadian job market will be affected by this change in worker behavior. Lower retirement rates may impact Canadians entering the workforce and the job opportunities available to them.
4. a higher valuation on the US dollar means less trade with canada
A drop in the value of the British pound will likely bolster the US dollar. When the US dollar is hot, trade opportunities with other markets, including Canada, will be reduced.
How does this affect Canadians? When the US dollar is strong, it’s more difficult to trade with the rest of the world. Reduced trade opportunities with the US mean fewer Canadian jobs in export-driven fields. The cost of travel to the US will also rise, impacting Canadians’ travel plans.
5. the canadian housing market continues to boom
Global interest rates will stay low due to global uncertainty. Buying a house will remain affordable as mortgage rates stay historically low.
How does this affect Canadians? The Canadian domestic housing market will continue to boom in response to the low, low mortgage rates. Supply and demand will continue to rule, with fewer houses on the market than Canadians looking to buy. A hot housing market is beneficial to Canadian jobs in construction and housing.
The final impact of Brexit is still yet to be determined, however, one thing is certain: Canadians can expect several shifts in the economy and job market while the dust settles over the next several years.