TD Canada Trust Weekly Economic Highlights – Jan. 7
HIGHLIGHTS OF THE WEEK – Jan 7/13
- The U.S. Congress agreed on a deal to avoid the fiscal cliff, but puts off a decision on automatic spending cuts two months into the future, lining it up with the requirement to raise the statutory debt ceiling.
- The deal makes permanent income tax rates originally set in 2001 and 2003 on all income below $400,000 (and $450,000 for couples filing jointly), but raises tax rates above that threshold to 39.6% from 35%. The deal allows the payroll tax holiday to expire, raising taxes on the average American household by $700 in 2013.
- Our Quarterly Economic Forecast, released in December, assumed a deal would be made and the details do little to change our economic outlook.
- The impact of the U.S. fiscal cliff deal has been more or less positive for Canada, at least in the short term. It partially removes the veil of uncertainty that contributed to the weak pace of economic growth in the second half of 2012. And the resolution does put the U.S. on track to record a healthier pace of economic growth in the first half of 2013 which should bode well for Canada’s export sector.
- The total impact of U.S. fiscal drag should shave roughly half a percentage point from Canadian real GDP growth in 2013, but a stronger profile for exports and business spending combined with a resilient domestic economy should lead Canada to a moderate pace of economic growth this year.
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