ANALYSIS: How Will Canada Be Impacted by the Stock Market Crash?

Foreign stock markets performed poorly on Monday, indicating growing concerns about the global economy, which will likely have an impact on Canada, as per several economists.

Eric Miller, president of Rideau Potomac Strategy Group, stated, “The markets are reacting to the prospect of a slower U.S. economy and its effects on the global economy. Additionally, there are considerable concerns stemming from a decelerating Chinese economy.”

Miller further added, “Historically, when the U.S. economy thrives, Canada tends to benefit as well. However, there is significant apprehension regarding the level of public sector debt in Canada.”

Japan’s Nikkei 225 index also saw a significant drop of approximately 12 percent on the same day, marking its worst decline since the Black Monday crash of 1987. The Canadian TSX remained closed on Monday due to it being a holiday.

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Miller commented, “Given the consistent job growth of 200,000 to 250,000 per month in recent years, the creation of 114,000 jobs is cause for concern. Financial markets tend to react strongly to such data and information without always maintaining perspective.”

Di Matteo said, “While Canada has experienced slow growth and managed to avoid a recession so far, the repercussions could be severe if the U.S. enters a recession, considering it is our largest trading partner and accounts for over 70 percent of our exports.”

Miller emphasized the need to wait for signals from the U.S. Federal Reserve regarding potential interest rate cuts to draw concrete conclusions about market behavior. He highlighted that uncertainties and potential conflicts in the Middle East could pose challenges for Canada, as higher energy prices would benefit oil producers but harm consumers.

“It’s premature to make definitive statements, and we can expect efforts from the Treasury Department and others to stabilize the markets,” Miller stated. “If the U.S. markets stabilize, Canada should weather the storm.”

Ian Lee, an associate professor at Carleton University’s Sprott School of Business, suggested that global markets might be “overreacting” to the U.S. jobs report, as the underlying strength of the U.S. economy remains intact. However, he warned that market expectations for a rate cut by the U.S. Federal Reserve during its July meeting could potentially push the U.S. into a recession if delayed.

Lee stated, “The primary concern is the U.S. economy and the possibility of a recession. There’s a lot of uncertainty surrounding this issue. The U.S. has been performing exceptionally well since the pandemic, surpassing Canada, Europe, and China. It remains the dominant factor in the current economic landscape.”