Fitch: NAFTA negotiations may result in an unfavorable economic outcome for Canada

"The risks have risen that North American Free Trade Agreement (NAFTA) negotiations may result in an unfavorable economic outcome for Canada," Fitch Ratings argued in a recently published report.

Key highlights

Failure to make progress at the latest (penultimate) round of NAFTA negotiations that began in Montreal this week could mean higher risks of a U.S. withdrawal. 

Although some sectors are highly exposed, Fitch believes the overall impact of a NAFTA abrogation on Canada would prove a manageable economic shock.

Canada's economy has performed robustly in recent quarters, underpinned by a strong labor market, household consumption and recovering global trade and energy prices.

Fitch estimates full-year real GDP growth to come in at 3.2% in 2017, marking a full recovery from two years of subpar growth in 2015-2016.

However, we expect growth to moderate and key sources of risk in addition to NAFTA uncertainty include very high household leverage, an inflated property market and rising rate environment.