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What it means for Canada — The indirect blow
The real blow to the Canadian economy would come indirectly, through:
The U.S.: the American economy, for one, would act as a major conveyor belt between us and Europe, which in 2011 was still the U.S.'s major trading partner. Also, as much as 20 per cent of U.S. banks’ core capital is thought to be linked to vulnerable European economies.
Commodity prices: Europe also happens to be China’s largest trading partner. The eurozone crisis has already had an important dampening effect on Chinese and global economic growth, which has in turn weakened commodity prices. The silver lining here is that lower commodity prices would lead to a depreciation of the loonie, which would in turn help our exports. That, though, is a meagre consolation.
Financial market crisis: finally, record-high levels of household debt and overvalued real estate make Canada particularly vulnerable to another financial crisis. “A global financial crisis could be a major catalyst for a sharp housing market correction and household deleveraging – albeit to a lesser extent than was evident in the U.S. during the past recession,” notes TD.
As the BOC put it, a worsening eurozone crisis would constitute “a major shock for both the Canadian financial system and the economy as a whole.”
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