As markets react to a downgrade in the credit rating of the United States by Standard & Poor's, Canadians are asking how uncertainty in the global economy could affect them.
And with good reason. Analysts say that, if the downgrade translates into slower growth and higher unemployment south of the border, the effects will reverberate across the 49th parallel.
"It's a big factor when the biggest economy in the world and our biggest trading partner potentially goes into a tailspin," said John Stephenson, vice-president of Toronto-based First Asset Funds, an investment management firm.
"The spillover effects are really into overall confidence and that will impact the consumer."
S&P announced Friday evening that it was reducing the U.S. credit rating, which was a first in U.S. history and eroded confidence that the world's largest economy would continue to recover in the months ahead
When markets reopened on Monday they were hammered. The Dow Jones industrial average, for example, plunged 634.76 points, or 5.5 per cent. Meanwhile the Toronto Stock Exchange fell nearly 500 points.
Signs that the growth in U.S. economy may be slowing, combined with public debt woes in Washington as well as in several European countries, contributed to heavy losses on the markets.
Adding to investor anxieties in Canada, a TD Economics report released Monday said there's now a one-in-three chance that the U.S. could be hit by another downturn.
While Canada is thought to be in a stronger economic position compared to its southern neighbour, the two countries are so interconnected that it would be next to impossible for Canadians to avoid the fallout if the U.S. were to enter a so-called "double-dip" recession.
If the U.S. economy were to contract again, Stephenson said many Canadian businesses would likely curb hiring, while consumers would ease off on spending, reducing demand for retail goods.
Canadian manufacturers and resource companies would be hit particularly hard, since 80 per cent of the country's exports are shipped to the U.S.
Economic worries have led prospective university students like Robyn Jones, in Montreal, to worry that employment opportunities may be scarce by the time they would finish their studies.
For Simona Li, a Toronto resident on vacation in Montreal, problems in the global economy have kept her from investing in stocks. Instead, she has opted for precious metals, which she feels are a safer bet.
"The whole world economy is not good," Li said. "People suffer from job losses, families suffer from unemployment. So it's no good."
Li is one among a growing number of investors who are putting their money into perceived safe havens, including gold, which hit a new record of $1,700 per ounce on Monday
On the upside, the falling price of oil, which has dropped by nearly 20 per cent over the past few weeks, should mean that filling up at the pump will be easier on the wallet.
But a new downturn in the U.S. economy would also affect those planning to retire, Stephenson said, by reducing their investment income.
"I think people have to brace themselves for tougher years ahead and it may very well be that many of us who want to retire will have to retire much later than anticipated because we can't count on the stock market to produce the returns they did in the past."
With a report from CTV Montreal's Aphrodite Salas and files from The Canadian Press
