In this week’s The Seven…

• ‘Mega deduction’ - A new Canadian tax incentive 
• Closer ties - Canada’s ‘associate’ EU membership
• Fed hike - U.S. moves first 
• Upon reflection - BofC looks deep into the core
• Interesting Fact - Rising demand for Alberta plant-based protein
• Chart of the Week - Canada’s exports to the EU

“Our house, it has a crowd

There's always something happening and it's usually quite loud” 

- Our House, by Madness

Foreign investors descended on Bay Street this week, crowding into meeting halls and boardrooms. The Canada Investment Summit was PM Carney’s pitch that Canada is a safe and reliable choice amid geopolitical instability. The slogan repeated all week? “Canada has what the world wants.” 

In other developments, the EU approached Canada to become an ‘associate member’, the U.S. Fed went for a hike, and a UofC report was released on the economic implications of separation (which we summarized yesterday).

There’s so much to unpack, but we’re trying something different - the Seven in less than seven minutes. We admit it - our enthusiasm for economics can manifest in length, creating TLDR risks. So we’re going with Seven under seven. Keep us accountable.

Canada can’t control a lot of things outside its borders. This week, the focus was on what the country can do. A big part of that is to bring investment home—addressing a problem that long predates Trump 2.0. We start there.

How Mega is the Productivity Mega Deduction?

Canada was making its pitch to foreign investors this week. More than the long list of investors and the ‘pitch book’ of projects, what really caught my attention was a new “Productivity Mega Deduction.”

Let’s start with the problem we’re trying to solve. Business investment has been languishing in Canada for over a decade and the weakness has carried into 2026—as I explained this week. This needs to turn around.

Economists like myself have been beating this drum for years. It seems more heads are collectively nodding that this is indeed a problem worth solving. 

A key component of the federal game plan was fast-tracking certain major projects. That’s a start, but it’s selective. What was missing was a broad-based regulatory and tax reform that would encourage all types of investment. 

Enter the “Productivity Mega Deduction.” This is a fancy term for allowing companies to write off their capital spending immediately, lowering this year’s tax bill. Normally, companies write off their spending over a longer period of time (the write-down period depends on the class of investment). The mega deduction covers about 65% of assets versus only 15% previously.  Finance Canada estimates that the measure halves the marginal effective tax rate on new investment to 6.4% - below that of the U.S.  

Bottom line: It may not be as grandiose as the “mega” name suggests, but this is, in my view, the biggest move to spur widespread investment in the last year. Will it be enough to move the dial? Not on its own. Ultimately, it will be Canada’s ability to execute big projects in a timely fashion that will send the strongest signal to foreign investors. 

In the meantime, as consumers struggle with higher inflation and trade tensions continue, a ‘shovels in the ground’ turnaround could not come soon enough. 

Getting a little closer - EU and Canada

Canadian PM Mark Carney welcomed the EU’s bid this week to make Canada the first associate member of the EU. 

But what does that actually mean? It’s unclear. Up until now, there was no such thing as an associate membership, and not all EU members are on the same page. PM Carney says any arrangement still needs to be ironed out and approved by Parliament. 

For now, it seems like deeper cooperation on things like AI, critical minerals, defence, energy, and the space sector. 

The EU as a market has a lot of potential for Canada, but we also need to be mindful of the starting point (see the Chart of the Week). 

Fed goes for a hike

Wall Street breathed a sigh of relief this week, as the Fed hiked its policy rate. The market was pricing in a 90%+ chance of a hike, and that’s exactly what newish Fed chair Kevin Warsh delivered. 

Relief may seem like an odd word choice, since higher rates are a sign of the high-inflation times. The concern was that if the Fed did not hike, it could be interpreted as political interference, when the economic and inflation signs were pointing to a hike (recall that President Trump has been calling for much lower rates).  

The Fed is likely not done, with the ‘dot plot’ forecast and interest rate futures pointing to another hike this year. 

Deliberations shed light on Bank of Canada’s inflation fears

“...members agreed that the risk that inflation spreads to other goods and services had risen”

-Summary of Governing Council deliberations

What keeps the Bank of Canada up at night? We have a better sense with the release of the BofC summary of deliberations ahead of the September 2 rate decision. 

In short, they are concerned about “core” or underlying inflation. So far, there’s not much evidence that higher energy prices have spilled over to other goods and services. But with diesel prices skyrocketing, it’s only a matter of time before higher shipping costs translate into higher costs elsewhere, including in the grocery aisle. 

So keep your eye on the core. If it starts trending higher, the BofC may hike. Those risks have increased. For now, we see them on hold next month as the economy is just too fragile at the moment. But, in our judgement, risks of an early hike have increased.  

Energy momentum - More on LNG and midstream

Positive momentum in the energy sector continued this week with some new announcements. Here’s a quick summary:

• Ksi Lisims LNG signed a 20-year agreement to supply 1 million tonnes—approximately 10% of facility capacity—of LNG annually to Australia’s Santos. As the project’s third international offtake deal this year, the agreement underscores growing global demand for Canadian natural gas. The project developers are targeting a year-end final investment decision (FID). 
• The Shell-led LNG Canada project is approaching a FID on its Phase 2 expansion in Kitimat, which could receive approval next month. A green light would double the facility's export capacity to 28 million tonnes per annum. The expansion also includes an option for a coalition of five First Nations to acquire up to $1 billion in equity.
• Midstream capacity is also scaling up. Calgary-based Wolf Midstream announced a $500-million expansion of its NGL North System in Alberta. The project will add 600 million cubic feet per day of  processing capacity to its northern facilities and expand operations in Sturgeon County.

Interesting Fact: Spike in plant-based protein demand - Alberta can help

A global whey protein shortage is driving supplement prices—such as tubs of whey protein powder—up by as much as 300%. The shortage is driven by demand from GLP-1 medication users and major food brands integrating whey into everything from Starbucks cold foam to mac and cheese. Because whey is a byproduct of cheese manufacturing, producers are capped by regulation and cheese demand and cannot scale whey production independently. 

To bypass this bottleneck, manufacturers are shifting to plant-based alternatives. Alberta produces nearly half of Canada's yellow peas, positioning local companies to supply the shortfall. Phytokana, for example, is looking to build a processing facility in Strathmore to turn local crop yields into commercial pea protein for the food industry.

Chart of the Week: Canada’s Exports to the EU

The European Union is a major market, representing about 18% of global GDP (in current US$). 

Canadian exports to that market are currently limited. The EU represented about 5.5% or $43 billion of Canada’s merchandise exports in 2025, a small fraction of the $563 billion that flowed stateside. Minerals, transportation equipment and chemicals top the list of products we export to the EU. 

Beyond trading agreements, trade and diplomatic ties, better transportation and port infrastructure will be needed. One project—the Port of Churchill Plus—is on the Major Projects list and would enhance access to the European market. 

Canada is moving to diversify export markets, but our Chart of the Week also speaks to ongoing U.S. export dependency and the importance of landing a fair and durable U.S.-Canada trade deal.

Answer to the previous trivia question: “Lord of the Flies” by William Golding was published on September 17, 1954.

Today’s trivia question: What does the U.S. Federal Reserve’s “dot plot” depict?