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Termination of NAFTA would clearly be a net negative for Canadian economy - BMO

On Monday, BMO Capital Markets published a report titled "The Day After NAFTA" on Monday, in which it said, "our overriding conclusion is that while the termination of NAFTA would clearly be a net negative for the Canadian economy, and a mild negative for the U.S. as well, it is a manageable risk that policymakers, businesses, and markets would adjust to in relatively short order."

Key quotes

Monetary policy would be looser than it would otherwise be, the Canadian dollar would adjust lower, trade policy would be aggressively aimed at securing new arrangements, and even fiscal policy would potentially adjust.

Over the span of five years, we estimate that real GDP would be up to 1% smaller than it otherwise would have been.

In the U.S., we judge the macroeconomic impact to be less severe—in the vicinity of a 0.2% net reduction in real GDP from what it otherwise would be over the next five years. 

While North America’s economies would ultimately adjust and adapt to a world without NAFTA, our conclusion is that the agreement has been a net positive for all three economies and it is deeply unfortunate that we are even considering this possibility. 

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