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How Canada’s economy is being impacted by the war in Ukraine

BDC | March 17, 2022

Ukrainian immigration into Canada - How Canada's economy is being impacted by the war in UkraineAfter two years of pandemic, now, a new source of uncertainty is hitting the economy—the invasion of Ukraine by Russia.  While Canada's trade relationship with Ukraine and Russia is limited, a careful analysis of the situation suggests there will be both negative and positive impacts for Canadian businesses and the economy.

Will customers affected by trade sanctions turn to Canada?

The trade relationship between Canada and Russia is too small for restrictions to have a significant direct impact on the Canadian economy. Exports total just over $600 million a year to the Russian federation, or only 0.1% of Canada’s total merchandise exports of $600 billion. 

See:  Ways you can help support Ukraine

Upward pressure on commodity prices is among the most notable economic effects of this war.  At a time when the energy markets are already tight, the invasion has driven crude and natural gas prices much higher.  Although driven by a horrific situation in Ukraine, these price increases could prove to be a boon for Canada, whose commodity production is very similar to that of Russia’s.

Pressure on supply chains to remain

The COVID pandemic and subsequent reopening of economies created significant imbalances between global supply and demand, putting pressure on supply chains and highlighting major international logistical problems. As we know, these imbalances have resulted in an inflation surge, the likes of which have not been seen for decades.

Central banks will respond to rising consumer prices

Households in Canada and other developed countries were already facing staggering price increases at the pump and at grocery stores created by those imbalances. The turbulence generated by the war means rising prices for oil, metals and agricultural products will continue and consumers will likely see no relief anytime soon.

See:  Is productivity, wealth creation and competition at the forefront of Canada’s growth agenda?

Inflation and the accompanying rate hikes will undoubtedly hit consumers' wallets and they can be expected to adjust their spending accordingly—meaning, consumption will be lower than what was expected prior to the conflict.

Newcomers and an immigration boom

Another element that could mitigate the economic impact for Canada is a potential surge in immigration and refugees from Ukraine. Canada's Ukrainian diaspora is the second largest in the world after Russia, which should help the integration of newcomers.

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