The Canadian economy isn’t technically in a recession; it just feels like one to most households. That was the take from Canada’s largest bank, which is raising concerns about the country’s economic setup. RBC economists warn that rapid population growth is boosting GDP, but it’s only obfuscating reality. More meaningful economic indicators, such as household consumption and employment, are eroding at a pace never before seen outside of recession.
Canada’s Rapid Population Growth Is Hiding A Weak Economy
Canada defines a recession as two consecutive quarters of declining real gross domestic product (GDP). The country has managed to keep real GDP positive, thus avoiding getting hit with the dreaded label. However, the measure is growing solely due to the surging population.
“Canada’s population grew by 6% from Q2 2022 to Q1 of this year, adding 2.1 million new consumers to the economy,” explains Carrie Freestone, an economist at RBC.
She notes that consumer spending accounts for more than half of GDP, and immigration is boosting the number of consumers. That’s good for the vanity numbers, but not so much for reality.
More bluntly, the economy is only growing in aggregate. Not because people are doing well in this economy, they’re actually doing worse. Canada is just adding more consumers of necessities through an aggressive immigration scheme. Consumers are weaker, and policymakers are trying to counter that with volume instead of focusing on quality of life.
“Without higher population boosting demand, the Canadian economy almost certainly would have contracted outright over the last two years,” according to Freestone.
Canadian Households Face Recession-Like Economy, Despite The Window Dressing
Outside of aggregate GDP, major economic indicators are printing recession-like data. The bank was particularly concerned with three areas—output, household consumption, and employment.
Adjusting output to the population paints a very different picture than the aggregate data. Per-capita real GDP has declined in six of the past seven quarters, and is now 3.1% below 2019 levels. The decline over the past few months was so sharp, it’s the largest observed outside of recession.
Declining per-capita output is often a sign households are doing worse, and that’s confirmed by consumption. RBC notes that average household spending is down 2.6% since peaking post pandemic, and is now 2% below 2019 levels. This is partially attributed to inflation and rising interest rates, which have cut into purchasing power.
Weak demand and low output sent unemployment climbing like only a recession does. Since hitting a record low post-pandemic, the unemployment rate has climbed a whopping 1.6 percentage points. The general rule is an 0.5 point increase will result in a recession within the following 8 quarters. Canada just saw 3x that increase in a little over a year.
“… since the 1970s, Canada has never had a trough-to-peak increase in the unemployment rate of that size without the economy going through a recession,” she says.
The bank sees relief in the future, but it’s not exactly around the corner.
“We expect real per capita GDP will likely still be negative through the end of this year but will turn positive in the second half of 2025 as headwinds from higher interest rates continue to fade,” concludes Freestone.
Other forecasts have been slightly less optimistic about that timeline without a major shift to the structure of Canada’s economy.
As usual, the BoC has left interest rates too high, for too long and the too-high rates have themselves become a major factor in continued inflation!
No, rates need to stay high (actually historically normal) to drop real estate prices enough for us to have a real economy again.
Sounds like classic stagflation.
So basically what they are saying is Trudeau’s govt has used excessive money creation through debt (mortgage/credit cards) and insane immigration quotas to hide the substantial damage done to the average Canadian family. We are talking about a 30+ % drop in real gdp per capita since 2015, that is the worst record since the 1930s? RBC shouldn’t pretend they are innocent in all of this, the main beneficiaries of all of this have been the big 6 banks. Everyone who comes to Canada seems to get credit, a phone, a car and so on. At present a lot of Canadians are dealing with credit issues, but not new immigrants? So the consumption by new immigrants is fudging the numbers even more ….
Well I’m sure for civil servants in Ottawa it’s not a recession. They got a 40% raise, barely do any work, and live in la la land where Trudeau and Freeland aren’t the equivalent of Cthulhu for Canada’s economy. This disconnect is so bad, Trudeau and his team didn’t think it was a problem for the last few years, until people started yelling at them? Then they called the cops?
Any recession is muted by government expenditures.. GDP and GDP/capita is only part of the equation – what about debt?
With so many in Canada employed by our many levels of government, and so much of the private sector supported by government programs, directly or indirectly, the impact of any downtime in the value producing part of the economy will be muted.. that is until the debt comes home to roost..
Not surprising, with the numbers for sale. How low will they go who knows, the older ones might well go to zero as repair assessments which are starting to appear may make them worthless. Recent article in US. Miami condo value $ 650000 assessment for repairs 240000. Dropped price to 499000 no takers. Condo fees are also getting to high to swallow so buyers are backing off and avoiding condos with high fees. this means there values are falling. Buy a condo and loose all your money has not yet happened. When values are falling, strata fees rising, and assessments start to be large buyers will just vanish,
Walks like a duck, talks like duck….
Unfortunately immigrants will not save Canada’s housing bubble from popping. Not when most new immigrants can get better properties for a fraction of a tiny condo back in their home countries.