Economic struggles: Canada's decline in GDP per capita signals concerns for future growth

Anne McLellan and Lisa Raitt

Canada’s economy reached a regrettable milestone this summer.

Statistics Canada released data this week that showed not only another weak quarter of growth but also a sixth consecutive decline in per capita national income.

That matches the longest ever stretch of negative per-capita quarterly readings in data back to 1946. The record was set during the 1981-1982 recession, which was the deepest contraction since World War II until the pandemic shutdown.

This grim milestone will cast more of a spotlight on our poor per-capita performance, which is telling us that our economic growth hasn’t been able to keep up with surging population numbers in recent years. 

The federal government has pledged to scale back international migration to address our economy’s incapacity to absorb the unsustainable population growth.

The next step would be to work hard on improving the numerator side of the GDP per capita equation, in other words, the actual size of the economy. That will be a bigger challenge and all parties need to take the task of accelerating our economic growth more seriously.

The numbers aren’t good.

Canada is in the midst of one of its weakest periods of growth in our history outside of recessions. The data out Friday showed our economy grew at an annualized pace of about 1 per cent between July and September—about what it has averaged over the past six quarters.

Not long ago, we were fretting about our inability to grow Canada’s economy by more than 2 per cent.

Even worse, that anemic growth includes the strong tailwind of massive population growth—these foreign students are spending billions of dollars in the economy—which suggests the strength of the economy is even worse than what’s reflected in the 1 per cent headline growth rate. We would take that low bar today, wouldn’t we?

We see this underlying weakness more clearly in the GDP per capita measure, which is signalling recession. That metric has declined by more than 3 per cent since the beginning of 2023—just a little bit less than what you would see in a major economic downturn.

So, how do we get the economy growing faster?

Here, we can take lessons from the recent experience with population growth—there are no easy solutions. Bringing in hundreds of thousands of non-resident foreign workers may have helped drive spending higher, but it created problems elsewhere—especially in the housing market. It just wasn’t sustainable.

The same applies to other “easy” solutions—whether it’s debt (both household and government) or a weakening currency. Increasing our productivity is the only surefire way to grow our economy in a sustainable way where Canadians will actually experience widespread and sustainable increases in incomes. There really are no substitutes.

And solving the productivity puzzle starts with creating an environment that is more conducive to investment. This must be a priority.

Here is the most damning statistic in the GDP numbers. Non-residential business investment fell at an annualized pace of 11 per cent in the third quarter and continues to hover below pre-pandemic levels. That needs to change.