It might still be early days to talk about the ramifications of the US shutdown on the Canadian economy, but a long deadlock between Republicans and Democrats will surely cause some damage here. Since October 1st, the US government workers have been sent on an unpaid leave, and there are no signs they will be told to join back anytime soon.
Canadian businessmen can only hope that the deadlock ends before it starts to hurt the interest of traders and investors. The shutdown, which many believe to be an act of political brinkmanship, has already started to affect the US stock markets.
Long Shutdown Might Hurt Canadian Economy
The United States is Canada’s largest trading partner, and historically, any development – whether positive or negative – has had an impact on the Canadian economy. Analysts opine that if the shutdown progresses to two or more weeks - as it had in 1995-96 – the cracks will start to widen up in the Canadian economy. Jayson Myers, President of the Canadian Manufacturers and Exporters, is of the belief that the shutdown will lower the confidence levels in the current economic climate. Craig White, chief economist with the RBC, said that a long government shutdown in US could have far-reaching repercussions on the fourth-quarter performance of the US economy. He estimated that a month-long deadlock could cut down the fourth-quarter growth by around 0.5%. Independent estimates have put the losses on account of the current shutdown at $300 million per day.
Debt Ceiling a Greater Threat than Shutdown
Although economists are concerned about the duration of the current deadlock, they are of the opinion that the impending US debt ceiling could severely impact the global economy. The US will be hitting its debt ceiling by around 17th October, 2013, and if the Congress fails to come to a decision on raising the debt ceiling, it will mean that the world’s largest economy will be defaulting for the first time in history. Investors and traders are hopeful that the Congress will not play the game of brinkmanship with the debt ceiling issue, but any delay in a declaration will see the world markets tumbling.
Finance Minister Jim Flaherty too has voiced his concerns on the US shutdown, reminding how the Canadian economy was dependent on the economic climate in US and EU (Yahoo Canada News). Other financial experts are of the view that Canada should now have a contingency plan in place to withstand the economic damage the debt ceiling crisis may cause.
The Game of Political Brinkmanship
Overall, it can be said that our largest trading partner is at a precarious situation right now. It could have easily avoided being in the position it finds itself in. In this game of political brinkmanship, it seems as if the future of millions of people depends on which side blinks first – the Republicans or the Democrats.