On June 5th, 2014, the European Central Bank implemented a policy to stimulate the eurozone economy and help prevent significant deflation. In doing so, the European Central Bank announced it would initiate a “negative deposit rate” (Jack Ewing, European Central Bank Takes a Radical Step, The New York Times) in an attempt to increase the lending of cash by banks. Original article can be found at: http://www.nytimes.com/2014/06/06/business/international/european-central-bank-cuts-interest-rate.html?_r=0
What impact will this have on Edmonton businesses?
The actions of the European Central Bank could have numerous impacts on Edmonton businesses. The ‘negative deposit rate’ could potentially decrease the value of the Euro against the Canadian dollar, and Canada could consequently experience an increase in imports from the EU. If the interest rate decreases in Europe, relative to other countries, the euro-zone countries could see capital move to other countries, which could decrease the demand for Euros and consequently result in the depreciation of the Euro.
The manufacturing sector in Edmonton could experience an alteration in trade flow, as Canada’s largest imports from the EU are in manufacturing. If the change in the valuation of the euro results in inexpensive EU manufactured products, Canadian manufacturers could experience an influx of EU goods in the market. As well, investments could be impacted by the actions of the European Central Bank, as the European Union is Canada’s second largest source of FDI. (Library of Parliament, Trade & Investment) Moreover, if the actions taken by the European Central Bank do not prevent or slow deflation as intended, the European economy could weaken, affecting Edmonton businesses trading with any of the 18-euro-zone countries. Alternatively, it could energize and stabilize the euro-zone economy, making it a more attractive investment market.
Overall, with the changes occurring in the European economy, accompanied by the potential incoming action of CETA, Edmonton businesses should remain aware of the happenings in the Europe.