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According to Moody's Investors Service, Canada's "Aaa" sovereign rating and stable outlook could probably withstand the worst case scenario of the North Atlantic Free Trade Agreement (NAFTA) in which no agreement was reached .
Although Moody's is based on the fact that Canada finally signs a new Nafta with the United States and Mexico, the rating company is convinced that the Nordic nation could adapt if no agreement was signed and that the United States imposes tariffs.
"We would expect the economy to adjust in some way to this shock from Nafta's worst-case scenario, probably by transferring some of its exports to other markets and perhaps changing somewhat the function of production". Moody's, based in York, said in a phone interview. "It would certainly weigh on growth, just as it initially weighed on investment and trust, but it would be temporary. We expected this to resume as things become clearer. "
The United States is about to release Friday the text of a bilateral trade agreement with Mexico, but officials in Washington and Ottawa remain in disagreement despite weeks of face-to-face talks. The deadlock raises fears that the United States will leave the renegotiated trading block, their main export market, which will result in potential hurdles to more than $ 500 billion in annual cross-border trade.
Markets are adapting
If Canada was not included in a new trade agreement, the countries would probably return to the rules of the World Trade Organization, which would not have a major impact on Canada. said Foster.
Although Canada is highly economically dependent on the United States, the debt-to-GDP ratio and deficits are falling and reaching reasonable levels, Foster said. Canadian policymakers have also been willing to respond to economic shocks, including the plunge in oil prices four years ago, he said.
Even if other protectionist measures would undoubtedly have negative repercussions on growth and, consequently, on revenues, the debt markets would considerably reduce the tightening of the Bank of Canada, which would probably result in a drop in returns, Andrew Kelvin, senior strategist, said.
"In addition, there is a significant demand for longer-term Government of Canada bonds, so I would expect the market to absorb any increase in GoC emissions without too much difficulty," he said. he said in an email.
At present, only 12 countries are rated "Aaa" by Moody's. The last time Canada lost the confidence of international credit assessors was in the early 1990s, as increasing government indebtedness led to downgrades by Standard & Poor's and Moody's. Moody's and S & P increased their credit ratings for the country to AAA in 2002, while Fitch Ratings improved it in August 2004.
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