North American markets took a tumble Friday after Brexit voters decided to leave the European Union, but economists say Canadians shouldn’t worry too much.
“I don’t think that it’s something that should impact their daily life by any stretch of the imagination,” said Benjamin Tal, deputy chief economist of CIBC.
“I don’t think that it’s a very significant impact. I don’t think it’s something that will derail our economy by any stretch of the imagination, but at the margin we will feel it.”
The direct economic effects of the decision will be minimal, said Tal, simply because Canada doesn’t trade all that much with the U.K. Only about three per cent of Canadian exports go there, according to Statistics Canada.
Jennifer Lee, senior economist with BMO, agrees.
“Our direct links to the U.K. economy are fairly minimal in terms of trade,” she said. “The impact is mostly indirect through the channel of financial markets, in terms of what we’re seeing this morning – the weaker Canadian dollar for example.”
Oil prices also dropped in the wake of the vote, which could impact Canada, she said.
“We’re seeing commodities being hit across the board this morning, and of course low oil prices are not great for Canada.”
Finance minister Bill Morneau, in a statement, said, “While some market and economic volatility can be expected, the Canadian economy is well placed and our financial institutions are well funded. Global markets are resilient and orderly, and we will continue to monitor developments in the world economy.”
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‘Brexit’ referendum sends New York Stock Exchange plummeting
In the end, 51.9 per cent of U.K. voters chose to leave the European Union in a national referendum held Thursday. The vote was divided though: Northern Ireland and Scotland voters wanted to stay, while English and Welsh voters wanted to leave. Londoners also generally wanted to remain part of the E.U.
There were immediate economic effects: the pound suffered one of its biggest one-day falls in history on Friday. In North America, the Dow Jones industrial average fell 381.69 points, and the S&P/TSX composite index was down 155.79 points Friday morning.
READ MORE: North American markets tank in early trading following British vote
But, the impact will be temporary, said Tal.
“I don’t think that it will last too long. I think that by next week the markets will be reassessing and realizing that the sky is not really falling. You will see policy-makers trying to calm the market. They will intervene in the market, they will cut interest rates in the UK.”
The U.K. and E.U. will be negotiating trade relations for two years now, he said.
“So the markets will say, ‘Wake me up when it’s relevant.’”
Lee thinks the market volatility will likely last a bit longer, at least until after the U.K. gets a new leader – since Prime Minister David Cameron announced that he would be leaving after the “leave” vote yesterday.
“The way it’s flowing out right now, it’s anyone’s guess what is going to happen next year. But I think over the next few months at least, with all of this uncertainty, you’re going to see continued volatility in financial markets,” she said.
She thinks that the United States Federal Reserve will likely decide not to raise interest rates until late this year, with the Bank of Canada also likely holding off until the last quarter of 2017.
And – she thinks it’s much too soon for Canadians to start tinkering with their investments.
“This is so fresh right now, I think it’d be a mistake to do anything because I think a lot of this reaction is just knee-jerk reaction.”
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