Canada’s Finance Minister François-Philippe Champagne delivered this week’s budget in a suddenly shifting economic landscape. The government aimed to make Canadians “masters of our destiny” by focusing on stimulus spending, tax cuts, and infrastructure investments rather than debt reduction. However, the decisive U.S. midterm election results, which repudiated President Donald Trump’s economic policies, have introduced significant volatility that could impact Canada’s economic outlook.
The election results burst the AI bubble, with 29 out of 30 state-level ballot measures calling for restrictions on data centres passing. Shares in AI companies, as well as those linked to Trump like Tesla, SpaceX, and Oracle, plummeted. Crypto markets, which had recovered under Trump’s administration, are now facing turbulence. The economic fallout could lead to a U.S. recession, which would likely affect Canada’s deficit projections despite the country having more fiscal space to absorb shocks.
The budget included notable investment measures, such as a housing plan to correct a sector that had been a drag on the economy and investments in renewable energy and electrification. The renewable energy sector saw a surge in shares following the election, while fossil fuel stocks fell sharply. The budget also introduced tax incentives for startups to diversify Canada’s export markets and industrial base.
While skepticism remains about whether the new U.S. Congress will be more favorable to free trade, the election results have weakened Trump’s position within his party. This could lead to less hostile trade negotiations between Canada and the U.S. However, the election was more of a rejection of Trump than an embrace of the Democrats, leaving the future political landscape uncertain.