Canada’s Economy Peaked Way Before The Pandemic When Measured Per Capita

There’s a good reason you might be feeling Canada’s economic recovery, and that’s because of how it’s measured. Canada’s gross domestic product (GDP) ripped higher in Q3 2021 and it’s just shy of the pre-2020 peak. Aggregate GDP measures are only useful for the size of an industry, not how it impacts people. For the latter, we should be looking at GDP per capita, adjusting for the size of population. Canada’s GDP per capita shows the economy contracted before 2020, and growth is slower than stated.

GDP Per Capita 

Measuring gross domestic product (GDP) per capita is just adjusting output for headcount. Aggregate numbers can distort a picture and imply greater growth when it’s not the case. By adjusting for population, you can see if an economy is getting stronger or just larger. It’s not a common metric in Canada, but most international organizations use it. It also used to be used for defining recessions.

The impact might not be super clear, so let’s run through an example. Imagine your portfolio has 10 shares of a stock bought at $10/share, and has an aggregate worth of $100. Let’s say that stock falls to $9/share, and you buy 2 more shares at the new price and your portfolio hits $108. If your portfolio is measured the way aggregate GDP is measured, it’s 8% higher. That’s huge growth, and seems like you made a whack of money. In reality, you incurred a loss of $10, or 10% of initial funds. Poor performance was concealed by looking at the aggregate instead of population performance. That’s GDP vs GDP per capita, in a nutshell.   

Measuring this way can have a profound difference in the picture of how an economy is performing. Countries with low to no population growth are likely to see little difference. Countries with high growth populations can appear to be booming, but things could actually be getting worse. An economy with little to no per capita growth benefits very few people. Aggregate GDP growth is largely a vanity metric.

Canada’s GDP Measured Per Capita Loses A Fifth of Growth

Canada’s GDP looks very different when looked at on a per capita basis. Real GDP showed quarter-over-quarter growth of 1.34% in Q3 2021. On a per capita basis it comes in at a lower 1.09% for the same quarter. Nearly a fifth of growth was due to the population, not productivity. It was also a relatively slow quarter for the population. On one hand, Canada gets bragging rights about growth. On the other, Canadians didn’t see a huge benefit (well, maybe homeowners).

Canadian Real GDP Vs GDP Per Capita Growth

The annual percent growth of inflation adjusted value of GDP for both the aggregate and per capita measures.

Source: Statistics Canada; Better Dwelling.

Annual growth shows a similar trend where the economy is boosted by averaging. Real GDP annual growth hit 3.97% in Q3 2021, but adjusting per capita it falls to 3.40%. It’s a large number for real growth, but that’s common for any country after a period of recovery. About 1 in 7 dollars of growth were just attributable to a larger group of people, not an improved economy. 

The most interesting takeaway is when GDP peaked and a “recovery” would occur. In aggregate terms real GDP peaked in Q4 2019, surprising no one since that whole thing in Q1 2020. The most recent report in Q3 2021 shows the economy is just 1.4% lower than the peak before the current recession. Per capita growth yields very different insights. 

Canadian Real GDP Vs GDP Per Capita

The inflation adjusted value of GDP for both the aggregate and per capita measures, in Canadian dollars.

Source: Statistics Canada; US Federal Reserve; Better Dwelling.

GDP per capita peaked back when we were innocently walking around with no idea what 2020 had in store. Real GDP per capita peaked in Q2 2019, a whole two quarters before aggregate GDP. The last quarter comes in 2.9% lower than the GDP peak per capita, meaning things are about twice as bad as they seem. The issue precedes 2020, but it was obfuscated by the aggregate.

Ultimately this brings up an important point — why is GDP important? Countries brag about aggregate growth, especially when compared to other countries. It’s essentially meaningless though, and glosses over whether a country benefits. Is the economy based entirely on world leaders having bragging rights? If that’s not the case, why use GDP (aggregate or per capita) at all? It has no connection to quality of life. Especially when the growth has been non-productive.

4 Comments

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  • Mark Bayly 2 years ago

    Government debt is an issue as well The various levels of government have to go 200 to 300 billion in debt every year to pay for all the government Cadillac services If immigration was the greatest thing since sliced bread Ontario would have a 500 billion dollar surplus not a 500 billion dollar debt

  • D 2 years ago

    Canada is projected to have a higher gdp this year because of $100 oil and homes nearing a $1 million on average. As usual the fastest and cheapest way to boost gdp is to move money around or artificially inflate commodities and assets.

  • Johnny Playa 2 years ago

    It is great to see someone finally take population growth out of the economic growth to get the “real” number.

    I’ve always said “ if we have significant growth in population, especially from immigration, and that causes increase in overall activity, but does not describe activity per person, how can that possibly be characterized as useful growth”

    One other question though. How does inflation play into this picture? If we measure all that activity in current dollar value, again, is that really useful growth?

    I suspect that the politicians like to conflate population growth and inflation growth with real “useful” growth because they would not have much to take credit for.

  • benji 2 years ago

    Not only that, it also increases the working age demographic bulge, which just kicks the can down the road in terms of unfunded pension/healthcare liabilities. At the same time clawing away the per capita income meant to fund those liabilities for an increasingly larger number of future retirees. Expected GDP per capita trajectory should really be the ONLY measure used to guide reasonable immigration policy.

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