With a surplus in their back pocket, the Ontario government felt the time was ripe for a sprinkling of election-friendly announcements including a cut to the small business tax rate and an assortment of minor program spending increases.
The Government is also ensuring that foreign real estate buyers are paying appropriate taxes on their investments. These measures are prudent, with a modest impact.
The continued strength in job creation and recent acceleration in wages supports our view that the Canadian economy will continue to perform well over the second half of this year, after hitting a speed bump in July and August.
Canada’s decision to increase immigration will help sustain long-term economic growth in light of its rapidly aging population and low birth rate.
A pause in interest rate increases is prudent against a backdrop of geopolitical risk. Nevertheless, the dovish tone from the Bank of Canada was surprising. With the economy quickly absorbing its excess capacity and growth in labour productivity suggesting a forthcoming acceleration in wage gains, we continue to believe that three interest rate increases are warranted before the end of 2018.
The Canadian economy delivered solid, and above expected, growth in the final months of 2016. This is positive news and provides a good handoff to 2017. It sets the stage of healthy, but moderate, growth of slightly above 2 per cent this year.