The government has proposed accelerating the cut in the corporate tax rate from 45 percent to 35 percent in return for businesses hiring 100,000 unemployed young workers. If legislated, the plan would have two positive effects. First, lower corporate taxes would tend to support higher investment spending by businesses. In addition, the decline in the ranks of the unemployed should bolster consumer spending. Canada Recent data out of Canada indicate that interest-sensitive sectors are showing the strains of the sharp interest rate hikes that the Bank of Canada undertook earlier this year in a largely unsuccessful attempt to defend the Canadian dollar.
Housing starts are off from the heady levels of the spring, and new car sales have flattened out.
More broadly, consumer spending has decelerated. After rising 1.6 percent in the second quarter, retail sales growth slowed to a 0.9 percent clip last quarter. The weakness of the Canadian dollar is having beneficial side effects though. As shown below, exports to the United States have grown very rapidly in the past few months as the price competitiveness of Canadian goods has improved. We do not look for the Canadian dollar to appreciate significantly against its southern counterpart anytime soon.