25th July 2016

Brexit—the United Kingdom’s vote to leave the European Union—shocked the world. 

Many thought the referendum didn’t have a chance of passing. Some believed the majority of Britons saw that the benefits of staying in the European Union (EU) far outweighed its shortcomings. Other’s thought it was some politicians’ half-baked solution to a growing immigration crisis. Other saw it as the status quo which wouldn’t be shaken. 

Whatever insignificance was attributed to the referendum before the vote on June 23rd, 2016 is now moot. Those in favor of leaving won by a 52-48 margin and now the UK and its strongest trade partners must deal with a period of uncertainty in its wake. 

Here in Canada, like most other places, it is too early to tell how exactly the Brexit vote will pan out in the long or even medium term. The short term effects thus far have been fairly minimal. In a time of many permutations—simply put—Brexit can go one of three ways for the Canadian economy—good, bad, or neutral. Since a neutral result wouldn’t change anything we’ll leave that possibility out. Let us explore some of the positive and negative impacts this historical decision could have.

The immediate impact of Brexit saw stocks in Canadian companies with firms and investments in the UK drop as many did not foresee a departure from the European Union (EU) as plausible. This was because a strong push to Bremain—the campaign to remain in the EU—was making tracks leading up to the vote. Because the UK was Canada’s gateway to European trade and having previous trade agreements in limbo, some Canadian companies are considering relocating their UK operations elsewhere. Canadian workers in the UK have legitimate concerns regarding their future if the Canadian companies they work for decide to leave. If Canadian companies decided to leave due to uncertainty in the market or lack of conduits into Europe, the property values of the Canadian businesses that stay in London, for example, could fall a whopping 15-20% within five years.

Believe it or not, Brexit may not spell all the doom and gloom for Canadian companies as some experts predict. The uncertainty and anti-globalization sentiments present in the UK at present could have foreign investors re-evaluating doing business there and looking toward other markets such as Canada. Also Canada could strike new deals that benefit its economy better than the Comprehensive Economic and Trade Agreement (CETA) it has with the European Union (EU) while negotiating a new, more comprehensive, and now separate trade agreement with the UK, one of Canada’s biggest trading partners. The Canadian companies that do leave the UK in search of other countries to set up roots for European operations could resettle in markets such as The Netherlands, France, or Germany. This could be seen as a positive step into building new foundations and reaching further into Europe which as a collective in the largest economy in the world.

 

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