Overview

This week’s note covers the latest COVID-19 infection, lockdown and vaccine developments. It then pivots toward economic news, including the continuation of broadly strong economic data in the U.S. and Canada. Finally, we look to China for clues about the market outlook, and discuss Canada’s first federal budget in two years.

There are arguably more macro positives than negatives right now. Negatives include:

• The ominous spread of more contagious (and more fatal, and more vaccine-resistant) variants.
• The further intensification of the third viral wave.
• Tentative Chinese policy tightening.

However, these are arguably outmatched by several positives:

• Vaccination efforts continue to accelerate.
• Highly vaccinated countries report among the lowest infection and fatality rates.
• The third wave appears to be peaking in Europe.
• The onset of warmer weather in the northern hemisphere should help to control the third wave.
• Fiscal stimulus plans continue to mount.
• Economic data remains strong, especially in the U.S.

Third wave

The global pandemic trend remains challenging. Daily infections continue to rise, now reaching new highs (see next chart). While fatalities recently hooked lower, perhaps related to vaccination efforts, it seems more likely that the improvement is merely a blip, given that inoculations have barely begun across much of the world and the fatality figures usually rise with a one-month lag.

Global COVID-19 cases and deaths

As of 04/18/2021. 7-day moving average of daily new cases and new deaths. Source: WHO, Macrobond, RBC GAM

While the latest wave is problematic in many parts of the world, the explosion in cases has been most extreme among emerging market nations (see next chart). Almost 60% of all new cases reported over the past week were located in Asia or the Middle East. Of course, a large fraction of the world’s population is in Asia.

COVID-19 emerging market versus developed market infections

As of 04/18/20201. Calculated as the 7-day moving average of daily infections. Source: WHO, Macrobond, RBC GAM

A significant number of the countries we track report a transmission rate of greater than one (see next chart). This means their daily caseload is accelerating. India and Iran are at the very top, but Canada is not far behind and countries such as Japan and South Korea are now faring poorly despite a prior track record of success.

Transmission rate above one means COVID-19 accelerating

As of 04/18/2021. Transmission rate calculated as a 7-day change of underlying 7-day moving average smoothened by a 14-day moving average of new daily cases. Source: WHO, Macrobond, RBC GAM

Brazil was until recently the most adversely affected nation, but has since staged a modest improvement over the past several weeks (see next chart). It is heartening that the Brazilian variant is starting to be controlled, but much more work is needed.

COVID-19 cases and deaths in Brazil

As of 04/18/2021. 7-day moving average of daily new cases and new deaths. Source: WHO, Macrobond, RBC GAM

India now claims the mantle of most new COVID-19 infections per day. Its rate of deterioration is truly startling (see next chart) and it now approaches the U.S. record for new daily cases. Of course, on a per capita basis, the country still records fewer cases than many of its peers.

COVID-19 cases and deaths in India

As of 04/18/2021. 7-day moving average of daily new cases and new deaths. Source: WHO, Macrobond, RBC GAM

As we had predicted several weeks ago, Canada now records a record number of new infections per day, notably surpassing the second wave peak (see next chart). Fatalities remain significantly below the earlier peak, though some of this gap will presumably narrow given the lag between rising infections and deaths. Still, we continue to believe that – for most countries – vaccination efforts to protect the most vulnerable people should outweigh the higher fatality rate associated with the variants. In turn, record daily fatalities will hopefully be avoided.

COVID-19 cases and deaths in Canada

As of 04/18/2021. 7-day moving average of daily new cases and new deaths. Source: WHO, Macrobond, RBC GAM

Canadian new cases per capita now exceed the U.S. – a first during the pandemic. Of course, U.S. cases per capita at the peak were far worse than the Canadian experience today. The difference between the two countries today is significantly explained by a much faster pace of vaccinations in the U.S. since the start of the year.

The U.S. daily infection numbers remain on a knife’s edge. They are rising very slightly (see next chart). This is a great victory relative to most developed nations, but nevertheless an undesirable trend. Given that most U.S. states are now reporting a transmission rate greater than one (see subsequent chart), it seems likely that U.S. infections will rise somewhat further. However, we expect any increase in hospitalizations to be small (see third chart) and do not anticipate a significant increase in fatalities. This is due to the high vaccination rate in the U.S.

COVID-19 cases and deaths in the U.S.

As of 04/18/2021. 7-day moving average of daily new cases and new deaths. Source: WHO, Macrobond, RBC GAM

Transmission rate, U.S. states

As of 04/18/2021. Transmission rate calculated as 7-day change of underlying 5-day moving average of new daily cases, smoothed with 7-day moving average. States above dotted at one have increasing new daily cases. Includes Washington, D.C. Source: Haver Analytics, Macrobond, RBC GAM

State of Florida

As of 04/18/2021. 7-day moving average of daily new deaths used as trendline. Source: Haver Analytics, Macrobond, RBC GAM

Peaking third wave?

The third wave is tentatively peaking in some parts of Europe. France provides one example: the daily infection rate is still unacceptably high, but has been edging lower for a few weeks (see next chart). Hearteningly, fatalities never spiked over this wave – presumably because of targeted vaccinations.

COVID-19 cases and deaths in France

As of 04/18/2021. 7-day moving average of daily new cases and new deaths. Source: WHO, Macrobond, RBC GAM

The situation is broadly similar in Italy (see next chart).

COVID-19 cases and deaths in Italy

As of 04/18/2021. 7-day moving average of daily new cases and new deaths. Source: WHO, Macrobond, RBC GAM

Poland has staged a more enthusiastic recovery, providing a higher level of confidence that the wave is truly abating (see next chart).

COVID-19 cases and deaths in Poland

As of 04/18/2021. 7-day moving average of daily new cases and new deaths. Source: WHO, Macrobond, RBC GAM

Conversely, an earlier tentative improvement in Germany has proven to be an illusion, with the country again deteriorating (see next chart). Fortunately, fatalities remain subdued by recent standards, again reflecting vaccination efforts.

COVID-19 cases and deaths in Germany

As of 04/18/2021. 7-day moving average of daily new cases and new deaths. Source: WHO, Macrobond, RBC GAM

What has allowed some European countries to begin the process of escaping from the third wave? Vaccinations play a role, but are probably not yet central. Warmer weather may also be helping. But the main factor is tighter restrictions of a sort that other countries have been reluctant to impose.

Variant spread

More contagious variants remain the primary reason for the third wave. Quality variant data remains difficult to come by. Some providers, such as the U.S. Center for Disease Control, have recently ceased to report such figures. Fortunately, we have a fairly good data source from Canada. Alas, the rate of growth is still explosive, with detected variants in Canada rising by a stark 71% to 190% per week over the past four weeks (see next chart). Loosely, the number of variant cases is doubling every week. To the extent that the variants are now the dominant form of the virus in Canada, this means that overall infections are nearly doubling every week.

Growth rates suggest worrying picture in Canada

As of 04/16/2021. Week over week growth in total new variant cases. Source: Government of Canada, RBC GAM

Further lockdowns

On the aggregate, politicians around the world have increased restrictions somewhat over the past several weeks (see next chart). However, the level of stringency remains shy of the peak reached during the second wave, let alone the peak from the first wave.

Global Stringency Index

As of 04/18/2021. Global Stringency Index measuring the strictness of lock-down policies that restrict mobility, calculated as stringency index of 50 largest economies. Sources: University of Oxford, IMF, Macrobond, RBC GAM

It usually takes around two weeks for tighter rules to show up in the infection numbers, so the next several weeks will reveal whether the new level of restrictions suffices to control the variants.

Policy responses vary widely across countries (see next chart). For example:

• The U.S. continues to open up.
• Canada has tightened moderately (with further recent tightening not yet captured).
• Much of Europe has tightened fairly aggressively.

The interpretation is similar on a level basis: The U.S. has fewer restrictions, Canada has more and European countries have the most. Given that European countries are only beginning to tentatively reduce their infection load, it may be that other countries like Canada will have to tighten further.

Severity of lockdown varies by country

Based on latest data available as of 04/14/2021. Deviation from baseline, normalised to U.S. and smoothed with a 7-day moving average. Source: Google, University of Oxford, Macrobond, RBC GAM

Vaccine progress

Israel continues to lead the vaccination race, with the U.K. and U.S. among the leaders at 63 doses per 100 people. As we had predicted several weeks ago, Canada has now surpassed EU nations in cumulative vaccinations (see next chart). In fact, the country has moved from 56^th in the world two weeks ago to 11^th now.

Cumulative doses administered by country

As of 04/18/2021. Cumulative total doses administered by country per 100 people. Source: Our World in Data, Macrobond, RBC GAM

China is also accelerating, up to 13 doses per 100 people.

On a flow basis, Israel has now slowed considerably – presumably as it runs out of people to vaccinate (see next chart). This is a bit concerning as 119 doses per 100 people (with two doses needed per person) means that the country is seemingly running out of steam with less than 60% of the population fully inoculated. This is short of herd immunity, though it nevertheless reduces the risk of transmission considerably. The U.K. has also slowed somewhat recently.

However, most tracked countries are blazing forward, recording more and more inoculations each day. Canada has now surged toward the top of the daily standings, trailing only the U.S. among large, wealthy nations, and is even now ahead of the U.K.

Coronavirus vaccine daily doses administered

As of 04/18/2021. 7-day moving average number of new daily coronavirus vaccine doses administered per million. Source: Our World in Data, Macrobond, RBC GAM

Vaccine efficacy

Estimates continue to swirl with regard to the precise real-world efficacy of each vaccine to different virus variants. What is clear, however, is that the countries that have inoculated the most people are enjoying wonderfully declining infection and fatality rates (see Israel in the next chart and U.K. in the subsequent chart).

COVID-19 cases and deaths in Israel

As of 04/18/2021. 7-day moving average of daily new cases and new deaths. Source: WHO, Macrobond, RBC GAM

COVID-19 cases and deaths in the U.K.

As of 04/18/2021. 7-day moving average of daily new cases and new deaths. Source: WHO, Macrobond, RBC GAM

Miscellany

Increased scrutiny of the AstraZeneca and Johnson & Johnson vaccines has now uncovered evidence of a higher rate of blood disorders among the recipients. Yet studies find that the rate of blood clotting is many times higher among COVID-19 sufferers than among those who receive the AstraZeneca vaccine. Furthermore, the risk of blood clots appears to be considerably higher from other generally accepted prescriptions such as birth control pills. As such, the risk-reward is still good for most people to receive such vaccines.

The Pfizer CEO recently highlighted two important points:

1. A booster may ultimately prove necessary to fully address more contagious variants. Fortunately, pharmaceutical companies have been at work on these for many months.
2. Immunity from COVID-19 appears not to be permanent. As such, regular top-ups will likely prove necessary, perhaps even as frequently as once a year.

This was much discussed last fall, but has since gone mostly unremarked. There could be some unfortunate overlap between developing nations receiving their initial shots and wealthy countries looking for top-ups in 2022. Presumably production capacity will have increased by then to the point that this is not a problem.

Economic developments

The economic news remains mostly positive, especially in a North American context.

International Monetary Fund (IMF) upgrades

We start with the IMF’s new global growth forecast, which enjoyed a substantial 0.5 percentage point upgrade to 6.0% for 2021. The U.S. was revised upward by a large 1.3 percentage points to a 6.4% forecast. Canada enjoyed a similar 1.4% percentage point upgrade to a 5.0% outlook. These are in line with what we are currently tracking for the two countries. Among most large nations, the outlook has been revised higher for both 2021 and 2022.

The value of the IMF outlook isn’t so much that it breaks fresh ground – if anything, IMF forecasts tend to be staler than the frequently revised outlooks provided by private-sector economists. However, the IMF outlook has the advantage of coming from hundreds of economists using the most sophisticated econometric modelling available. As such, it is highly credible.

Other interesting tidbits from the IMF include:

• The IMF estimates that the economic contraction in 2020 would have been three times as large without the extraordinary policy support provided by fiscal and monetary policymakers. Thus, while we can moan that some programs were mistargeted and some were perhaps overly large, the net effect was enormously helpful.
• The title of the IMF’s report is illustrative: “Managing Divergent Recoveries”. Not all countries will emerge from the pandemic at the same time or with the same enthusiasm. The rate of inoculation, degree of economic stimulus and tolerance for loss of life all matter (and vary) significantly.
• Finally, the IMF acknowledges that inflation will temporarily leap higher in the near term, but remains firm in its conviction that core inflation pressures are actually set to decline rather than increase. Further, and relatedly, the Phillips curve is acknowledged by the IMF to be extremely flat. A low unemployment rate won’t necessarily create undesirable inflation due to the dampening effects of globalization, automation and rising market concentration.

Real-time data points to U.S. acceleration

$1,400 stimulus cheques continue to flow into the hands of Americans, with 130 million of them issued by April 5. In turn, real-time consumer card spending has surged: it is now a remarkable 20% higher than two years ago (see next chart). It is necessary to compare activity to two years ago because a) conditions were highly distorted during the early phase of the pandemic one year ago and b) seasonal variations are sufficiently large that it is not possible to reliably compare spending to any other point in the year.

U.S. aggregated daily card spending

As of 04/03/2021. Total card spending (7-day moving average) includes total BAC card activity which captures retail sales and services which are paid with cards. Does not include ACH payments. Source: Bank of American COVID-19 and the consumer weekly publication, RBC GAM

After stagnating or even slightly retreating over the prior seven months, American small businesses report a sharp increase in revenue over the last two months (see next chart).

U.S. small business revenue rebounds

As of 03/24/2021. Percent change from baseline period of January 4 to 31, 2020. Source: Womply, Opportunity Insights, Haver Analytics, RBC GAM

Finally, travel is surging in the U.S. After a long, slow recovery since last spring, activity is now surging (see next chart). It is clear that the U.S. economy is accelerating in March and April.

TSA checkpoint travel numbers continue its climb to normalcy

As of 04/07/2021. 7-day moving average change compared with same weekday of prior years. Source: TSA, Macrobond, RBC GAM

U.S. traditional data strong in March

Traditional U.S. economic data has also proven strong, although it is only available through March. The Institute for Supply Management (ISM) Services index jumped from a good 55.3 to a great 63.7 in March. This is the highest level in the history of the series dating back to the 1990s.

U.S. retail sales for March jumped by a heroic 9.8%, aided by stimulus cheques and a rebound after winter storms in February (when retail sales fell 2.7%). Industrial production also rose 1.4% in March.

Housing starts increased by a sharp 19% in March – again, partially weather-related. This is the highest level since 2006. The U.S. housing boom remains alive, if slightly less manic than a few months ago, now that mortgage rates have increased.

The U.S. Beige Book provides a qualitative look into economic conditions, with reports of strong consumer spending, greater optimism about tourism and rising demand for leisure and hospitality services. Price increases are reported as moderate.

Canadian data similarly good

Canadian economic data is also proving to be good. However, we expect Canada to underperform over the coming few months given the country’s more challenging virus situation.

March employment rose by a big 303K, with good peripherals. The unemployment rate is now down to 7.5%.

The Business Outlook Survey, released on April 12, was also strong. Business sentiment is now more optimistic than it was pre-pandemic, and very close to the most optimistic reading in several decades. Remarkably, two-thirds of companies now report sales at or above pre-pandemic levels. It is of course the remaining one-third that suffer disproportionately.

Plans to increase machinery and equipment investments are the greatest in decades, and plans to add to the workforce are also considerable. Of course, in all of this, enthusiasm is in part so great because there is room for outsized growth due to the earlier underperformance – not because economic conditions are outright better than usual.

One ominous note is that Canadian businesses report significant input price pressures and plan to pass these along. In turn, nearly 60% of firms expect inflation of 2% or higher – a larger-than-normal fraction (though not unprecedented: the reading was similar in 2018).

Bank of Canada decision approaches

The next Bank of Canada decision arrives imminently, with new forecasts and a Monetary Policy Report set to come alongside it.

The economic outlook is universally expected to be upgraded. The Bank has already acknowledged that the “economy is proving to be more resilient than anticipated” and the existence of a “stronger near-term outlook.” In particular, Canadian growth in the first quarter was considerably better than was assumed by the central bank. While the third wave adds a new challenge, the mildness of the economic damage from the second wave argues that not too much should be subtracted from near-term forecasts.

Interestingly, the Bank of Canada is also likely to increase its estimate of the potential growth rate. This is good in two ways:

1. It argues that Canada has not suffered as much scarring as initially feared – a theme we have been highlighting for some time.
2. It means that the Canadian economy can grow by more before overheating. As such, not all of the Bank of Canada’s upgraded forecast will have to be countered with more hawkish monetary policy.

With regard to the actual policy decision, no change to the overnight rate is expected. There is a small chance that the Bank acknowledges the possibility that tightening might occur before the previously anointed year of 2023. But it might be reckless to signal such a thing so far in advance, particularly when yields have already backed up significantly over the past eight months and the central bank is likely to engage in mild quantitative easing tapering at this meeting.

Indeed, quantitative easing is likely to be scaled back with this decision. This was unanimously forecast by the C.D. Howe Institute’s shadow monetary policy committee. Most analysts anticipate around a $1 billion cut to the weekly bond buying program, taking it from $4 billion per week to $3 billion. This is in part due to upgraded economic prospects, but also because the central bank already owns a very large fraction of the government of Canada bond market (more than 40%).

Recall also that the Bank of Canada has already announced the expiry of a variety of programs that are no longer needed. The commercial paper program ended on April 2. The provincial bond purchase program will end on May 7. The corporate bond purchase program will end on May 26. Additionally, various liquidity operations are also being deactivated over April and May.

A cloud from China

China is an enormously important country for market watchers. It has served as a leading indicator throughout the pandemic, having been struck by the virus first, escaping first and managing a nearly complete economic recovery first. It is simultaneously responsible for a gargantuan share of global economic growth – far more than any other country, including the U.S.

In general, China has provided reason for optimism throughout the pandemic. It has proven that the virus can be controlled, that people will get back on airplanes, that consumers will return to malls, that economic scarring should be limited, and so on.

But the country’s economic experience has more recently been somewhat mixed. China’s Manufacturing PMI (Purchasing Managers’ Index) is now at an 11-month low, though the PMI was artificially high during the recovery phase that is now nearing an end. While GDP is up by 18.3% relative to a year ago, year-ago comparisons are no longer particularly useful to the extent that they compare activity to the worst of the pandemic. Instead, we can say that Chinese GDP in the first quarter grew by just 2% annualized – less than the normal 6% rate.

Fortunately, some seasonal gremlins appear to be at least partially to blame, with 6—7% growth rates expected in future quarters. Nevertheless, the country has slowed from its previously torrid growth rate even if it remains mathematically on track for 9% growth across 2021.

Other highlights:

• Retail sales are now 8.5% higher than two years ago – a decent but unspectacular performance. We must compare to two years ago to get around the distortions of one year ago.
• One particular bright spot remains exports, which are up by a whopping 29% relative to two years ago. The change in global consumption patterns away from services and toward goods has been very kind to China.
• Chinese vaccinations are finally accelerating, but the virus is so limited within China that this doesn’t markedly change the outlook.

Interestingly, Chinese core Consumer Price Index (CPI) is just 0.0% on a year-over-year basis. While each country has its own idiosyncrasies, this argues powerfully that countries need not grapple with excess inflation once their economies return to normal.

But the real story is in China’s credit markets. Credit growth is slowing, to the point that the country’s credit impulse will turn negative in May. This is tolerable because there are enough other positive drivers in the economy. Nevertheless, it is a notable change from the stimulus-driven world of the pandemic. There are even rumblings of possible rate hikes in the country in the fall.

China’s housing market has been described as a bubble by the country’s head banking regulator. Property sales are 21% higher than two years ago. Some macro prudential tightening has already taken place to limit certain property loans, with more possible.

Individually, all of this makes sense and seems reasonable. A major policy error is unlikely. However, it remains notable that China has emerged from its rapid recovery phase and is now slowing down.

Simultaneously, China can be described as pivoting from policy stimulus mode to policy restraint mode. To the extent that financial markets have occasionally had taper tantrums when the U.S. does this, it is not impossible that markets express some trepidation as something similar occurs in China.

Expansive Canadian budget

It has been two years since Canada last proposed a budget. Much has changed over those two years. Not only is the economy weaker, but interest rates are lower and the public debt load is much higher. Canada has implemented unprecedented spending and deficits in response to the pandemic. The country has even formed a new minority government since the last budget, with implicit backing from the left-leaning NDP (New Democratic Party). And while the party in power remains the same – the Liberals – the finance minister is new and theoretically more left-leaning than her predecessor. All of this adds up to a different, more expansive budget.

Many new spending initiatives

The government has committed another $100 billion of spending over three years. Many, including the IMF and the Parliamentary Budget Office, have questioned whether all of this money is needed at a time when the economy will probably be back to its potential by 2022. There is the risk of overheating and/or a lower-than desired fiscal multiplier.

Pandemic-specific spending initiatives include:

• An extension of the more generous unemployment payments (CRB) through the fall of 2022 at a cost of $20 billion. This had been set to expire in June.
• An extension of wage and rent subsidies for businesses (CEWS, CERS) through September instead of merely June. This has a price tag of $12 billion.
• A new Canada Recovery Hiring Program (CRHP) that will run from June through November and cover as much as half of incremental pay for new hires, more hours or higher wages.
• $3 billion for long-term care programs.
• More money for the tourism and hospitality sectors, and for small businesses.
• A commitment to spend even more if needed into the autumn.

Non-pandemic spending includes:

• A major new plan for universal childcare at $10 per day, much like the current program that exists in Quebec. The government has committed $30 billion over the next five years, with $8.3 billion per year subsequently. Note that childcare is a provincial responsibility, so the federal government will have to negotiate with the provinces and ultimately wants the provinces to match half the costs. This is thus likely still several years away from full implementation.
• Students won’t have to pay interest on their federal student loans until March 2023.
• Seniors will receive a one-time $500 cheque, plus a 10% boost to Old Age Security payments.
• Interest-free loans for green home renovations.

Despite some pre-budget speculation, universal pharmacare was not a focus of the budget. Nor were any basic income initiatives (though one might argue that the extension of generous unemployment payments take their place for now, and that this item could be revisited in a future budget).

The budget has been criticized for insufficient infrastructure spending – a key means of enhancing productivity. Funding has been provided for public transit, but much doesn’t arrive until years from now.

A few new revenue initiatives

Several new taxes are planned in the budget. Of particular relevance to investors, though, the capital gains inclusion rate, the top personal tax rate and the corporate tax rate all remain unchanged.

Instead, the key taxes are as follows:

• A new annual 1% tax on foreign-owned homes, akin to what British Columbia and Ontario have already implemented in parts of their provinces. Recall also that the bank regulator recently announced plans to tighten the rules around the issuance of uninsured mortgages. Despite concerns to the contrary, capital gains on primary residences will remain tax-free, and there were no other measures intended to slow the current housing boom. CMHC (Canada Mortgage and Housing Corporation) will receive $2.5 billion for a variety of projects, including the construction of more affordable housing.
• As proposed several years ago and then detailed last fall, there are new restrictions on stock option deductions for high-income workers.
• A luxury tax on cars and aircraft costing more than $100,000 and boats costing more than $250,000.
• A digital services tax of 3% starting in 2022.

Should the U.S. implement the wide-ranging tax increases proposed by the Biden administration, Canada should find itself somewhat less badly behind the U.S. from a competitiveness perspective, despite these tax increases.

Economic implications

The additional spending proposed in this budget is worth $100 billion over three years. This amounts to 4-5% of GDP. This is considerably smaller than recent U.S. initiatives in which new spending amounts to well over 10% of GDP. But the comparison is imperfect since several pre-existing Canadian programs were already budgeted through mid-year, whereas in the U.S. most programs expired last summer and had to be reintroduced.

One might argue that both the U.S. and Canada are spending too eagerly at a time when:

• Economic growth is already rapid.
• The great majority of the remaining economic shortfall is a function of artificial restrictions on certain activities that no amount of money can overcome.
• There are worries about overheating and excessive inflation.
• Public debt loads have already leapt considerably higher.

Nevertheless, it is simultaneously true that unemployment rates are still elevated, a considerable amount of suffering persists, and borrowing costs are low.

Our own forecasts already assumed spending largesse on this scale, yielding a remarkable Canadian GDP forecast of nearly 6% for 2021.

Fiscal considerations

The deficit for 2020 is now estimated to have been $354 billion, down by a substantial $28 billion from the initial estimate. This is due primarily to faster-than-expected economic growth. The deficit then shrinks by more than half to $155 billion in 2021 before falling again to $60 billion in 2022. Much of this improvement is due to naturally declining demand for government programs as the economy recovers.

The federal debt, having been just 31% of GDP before the pandemic, skyrockets to 51% this year, before beginning a gradual decline in subsequent years. This is to say, the economy should grow quickly enough in 2022 and beyond to more than offset the persistent deficits in the debt-to-GDP calculation.

This budget is unlikely to trigger an immediate election, though the Liberals are thought likely to seek an election within the next several months. The budget certainly feels like an election budget given its many outlays for different groups.

-With contributions from Vivien Lee and Sean Swift