Ukraine crisis adds to economic risks

OTTAWA — The Russian army’s march into Ukraine’s Crimean peninsula has added to the already formidable risks facing the global recovery and by extension Canada’s economy, according to analysts and business leaders.

OTTAWA — The Russian army’s march into Ukraine’s Crimean peninsula has added to the already formidable risks facing the global recovery and by extension Canada’s economy, according to analysts and business leaders.

The economic ripples from Russia’s widely condemned action over the weekend began being felt as markets opened for business Monday, with the Russian exchange tumbling 12 per cent and the ruble falling to the lowest point ever against the euro and U.S. dollar. Markets in Europe and New York also fell.

The Toronto Stock Exchange avoided the worst, closing marginally higher as rising gold an energy stocks offset declines elsewhere and also helped support the Canadian dollar, which fell less than most amid a flight to the perceived safe have of the U.S. greenback and treasuries.

Whether the political crisis has a profound, longer-term impact on the Canadian economy will depend on how long it lasts, whether it escalates, and on the West’s response, says Bank of Montreal chief economist Doug Porter.

Some western governments have ramped up the tough talk, with U.S. Secretary of State John Kerry opening the doors to sanctions.

On Monday, Prime Minister Stephen Harper warned Moscow it faced “diplomatic and economic isolation” and the risk of being kicked out of the Group of Eight leading industrial countries.

In a further response, Harper spokesman Jason MacDonald said that the prime minister had instructed officials to review “all planned bilateral interaction with Russia.”

“We will continue to work with our allies as we consider the full range of bilateral and economic consequences, such as travel bans and sanctions,” he added.

In direct terms, Russia is a small but growing player in the Canadian economy.

According to government figures, Canada-to-Russia exports have grown eight-fold in the past decade to $1.5 billion in 2011, and investment hit almost $5 billion in 2012 with a number of large Canadian firms having either planted their flag or begun the process of establishing a presence in the country. Among then are Kinross Gold (TSX:K) and other mining concerns, as well as other well-known names such as Bombardier (TSX:BBD.B), Pratt&Whitney Canada and SNC-Lavalin (TSX:SNC).

As well, Ottawa has been actively courting a wider engagement. With a population of 140 million, it has identified Russia as a priority market and Trade Minister Ed Fast led a trade mission to the former communist country in June 2012.

Recent events are not good news for that initiative, nor for Canadian firms with dealings in Russia, says Dan Kelly, president of the Canadian Federation of Independent Business. He notes any firm involved with the country likely has a large tolerance for risk.

“But these kinds of things do spook business owners when they are looking at expanding abroad,” he said, and doing business in Russia was already “not for the faint-hearted.”

A spokesperson for Toronto-based Kinross, one of Canada’s top investors in Russia, said the events had not affected its operations in Russia’s far east.

“Our strong co-operative commercial relations with the Russian government have served us well for over a decade and are a key strength for Kinross in the region,” said Andrea Mandel-Campbell, the company’s director of corporate communications.

Economists say the most significant impact on Canada’s economy of a chilling in relations would be through indirect channels, however.

“If it did escalate, it certainly could chill business and consumer confidence and spending, not just in Canada but around the world,” said Porter.

“Russia is a trading partner with Canada and if there are serious sanctions put in place, then it could have some direct impacts. But those are a little less important for the broader economy than the potential indirect effects if the situation escalates.”

As with all geo-political crises, such as war in the Middle East, markets tend to react by seeking shelter from the storm, said Craig Alexander, TD Bank’s chief economist, and this one is no different — hence the flight to the U.S. dollar and U.S. treasuries.

“Financial markets don’t like uncertainty and this has economic uncertainty, it’s got financial uncertainty, it’s got political uncertainty, and when the international community is upset with Russia, financial markets are not going to view it as a positive either,” he said.

Alexander said the first pressure point could come if the Ukraine fails to meet its debt obligations and there is no international assistance on offer to shore up its finances. This could put pressure on already troubled European banks thought to hold Ukrainian debt and lead to contagion.

“That’s why international financial assistance is absolutely essential,” he said.

Porter said the Ukrainian situation may get a mention, even if indirectly, from Bank of Canada governor Stephen Poloz in Wednesday’s interest rate announcement as just another question mark about the future economic outlook that policy-makers need to consider.

Just Posted

Alberta’s status of women minister joins Twitter debate over women’s marches

EDMONTON — A minister in Alberta’s NDP government has chastised a tweet… Continue reading

Canada faces angry Americans in pivotal sixth round of NAFTA talks

Canada will be hosting an annoyed and angry United States as the… Continue reading

Arts and Craft (Beer) evening set for Feb. 3

Raising money for Red Deer Arts Council

‘Hobbit’ director Peter Jackson making WWI documentary

LONDON — “The Lord of the Rings” director Peter Jackson is transforming… Continue reading

Hot summer ticket: $130K could get you on a dive to the Titanic off Newfoundland

ST. JOHN’S, N.L. — Are you a risk-taking adventurer with $130,000 to… Continue reading

WATCH news on the go: Replay Red Deer Jan. 21

Watch news highlights from Red Deer and Central Alberta

Two Canadians, two Americans abducted in Nigeria are freed

Kidnapping for ransom is common in Nigeria, especially on the Kaduna to Abuja highway

WATCH news on the go: Replay Red Deer Jan. 21

Watch news highlights from Red Deer and Central Alberta

Liberals quietly tap experts to write new paternity leave rules

Ideas include creating an entirely new leave benefit similar to one that exists in Quebec

Insurers say Canadian weather getting hotter, wetter and weirder

Average number of days with heavy rain or snow across Canada has been outside norm since spring 2013

Are you ready for some wrestling? WWE’s ‘Raw’ marks 25 years

WWE flagship show is set to mark its 25th anniversary on Monday

VIDEO: Thousands join women’s march events across B.C.

Today marks one year since the first Women’s March on Washington

In photos: Get ready for Western Canadian Championships

Haywood NorAm Western Canadian Championships and Peavey Mart Alberta Cup 5/6 start… Continue reading

WATCH: Red Deer city council debates cost-savings versus quality of life

Majority of councillors decide certain services are worth preserving

Most Read


Five-day delivery plus unlimited digital access for $185 for 260 issues (must live in delivery area to qualify) Unlimited Digital Access 99 cents for the first four weeks and then only $15 per month Five-day delivery plus unlimited digital access for $15 a month