Russia-Ukraine crisis: How sanctions could impact Canada's economy

International measures against Russia continue as the conflict escalates

Russia-Ukraine crisis: How sanctions could impact Canada's economy

As the horrific situation in Ukraine continues to unfold before the world’s eyes, the Canadian government is ramping up its sanctions regime against individuals and organizations with ties to the Russian state.

The latest round has seen five prominent Russian leaders and 32 companies and organizations connected to the country’s military and security services sanctioned, with renowned oligarch Roman Abramovich among the figures to have their assets frozen.

Those measures arrive as Russia’s brutal onslaught against Ukraine spurs an ever-escalating humanitarian crisis that’s seen a staggering figure of over 2.3 million Ukrainians flee the country since the invasion began.

It’s also sent global financial markets into a tailspin, with energy prices suddenly soaring across the world and putting further upward pressure on inflation that had already ballooned in many countries, not least Canada.

Canadian financial institutions have also seemingly taken a hit from the sanctions, with the Toronto Star reporting that Canadian banks and investment firms held stock to the tune of some $200 million in seven sanctioned Russian companies.

International Monetary Fund (IMF) managing director Kristalina Georgieva has already indicated that the organization is likely to cut its global growth forecast as a result of the Russian invasion in Ukraine, even though she told CNBC that it still expects the world to be in “positive growth territory.”

Read more: Russia-Ukraine crisis: How will it impact Canada's economy?

Meanwhile, in its most recent policy rate announcement, the Bank of Canada signalled its concern over the evolving situation in Ukraine, noting sharp increases in oil and other commodity prices and highlighting increased volatility in financial markets because of Russia’s aggression.

The Russian invasion was among the factors that would likely drive up inflation in the near term, the Bank indicated, with “persistently elevated” inflation also a longer-term possibility.

Speaking with Canadian Mortgage Professional shortly after the Bank issued its most recent rate announcement at the beginning of March, BMO Financial Group’s chief economist and managing director Doug Porter (pictured top) said the ultimate impact of the crisis on Canada’s economy remained to be seen, especially since the country exports many of the same things as Russia.

“Canada’s in a bit of a unique place as a very significant oil exporter with not that many direct ties to Russia,” he said. “Of course, [it’s] not just an exporter of oil, but also natural gas and lots of agricultural products as well.”

While in purely economic terms some regions of Canada could technically benefit from the horrors of the war, Porter also said that spiking oil prices would likely outweigh any positive economic impact from the crisis.

“Even if it’s just higher oil prices, there are obviously winners and losers within the Canadian economy – and when you get a really significant move in oil prices, it tends to be negative,” he said.

“We can all see the headlines about record gasoline prices and how it might deliver a shock to consumers. So I do fear that there can be some secondary effects that ultimately turn this into being a negative for the Canadian economy.”

While the US Federal Reserve chair Jerome Powell had hinted that the central bank would introduce a 50-basis-point rate increase at some point this year, sparking some speculation that the Bank of Canada might follow, Porter said the Ukraine crisis would probably temper any moves in that direction.

Read more: Bank of Canada hikes rate

“Jerome Powell did not rule out 50-basis-point moves later this year, but obviously we need a lot more clarity on the situation in Ukraine before the central bank can even think about that,” he said.

James Laird, co-founder and CanWise Financial president, told CMP that the most obvious impact on the Canadian economy would be surging inflation resulting from Russia’s status as a commodity-based economy and new restrictions across the world on purchasing from that major supplier.

“That’s going to drive up inflation even further, both directly through the cost of those resources and indirectly,” he said. “In the context of the mortgage and finance world and the Bank of Canada policy, that’s the most obvious impact from the conflict over there.

“If Russia stays locked out of the global economy so that we’re not buying their resources, then resource prices will stay inflated until that changes. If we’re not buying from one of the number-one suppliers of many different resources, then there’s no end in sight for those commodity prices to come back down.”