Canada’s economic output is stronger than expected but far from impressive. Statistics Canada (Stat Can) real Gross Domestic Product (GDP) grew in July, following up a flat month. Any positive expectations are cooled by the details, revealing a few only-in-recession data points. That includes government stimulus in the form of public sector expansion being one of the few primary drivers of growth. Economic output is also significantly behind population growth, continuing the trend of per-capita GDP contractions that have never been this deep outside of a recession.
Canadian GDP Grew In July, On Track To Underperform BOC Forecast
Canadian economic output advanced higher than the preliminary estimates, beating expectations. Real GDP grew 0.2% in July, following no growth in the previous month. That sounds positive until the data is broken down by industry and timeline.
The agency expects no growth in their preliminary estimates for next month’s report. In a letter to investors, BMO chief economist Douglas Porter warned the growth is far below expectations. Even with a robust September, the quarterly growth is on track to hit just half of the Bank of Canada (BoC) forecast.
“Governor Macklem has already flagged the risk that growth was coming in lighter than expected, but 1.3% is well below potential and a serious step back from the respectable 2% average pace in the first half of the year,” explains Porter.
Canada’s Largest Non-Recession Per-Capita GDP Contraction
Despite population growth beginning to slow, it’s still advancing much faster than real GDP. The past 3-months have seen annualized real GDP growth hit 1.5% in July, almost a point shy of the 2.4% population growth in the same period. It’s a persistent trend these days, and the problem National Bank (NBF) was focused on in response to this morning’s release.
“GDP has seen a cumulative decline of 3.9% since its peak in 2022, the first time this has occurred outside a recession,” explained Matthieu Arseneau, deputy chief economist at NBF.
Recession isn’t officially here, but Canada is acting like it’s already in one. “The situation would be much worse without the current spate of government spending,” he adds.
Canada’s Governments Are Expanding 5x Faster Than Businesses
Real GDP growth was driven primarily by retail and government hiring, according to Stat Can. Retail advanced 1.0% in June, marking the second consecutive increase. It was also the largest retail growth observed since January 2023. Typically this is a sign of stronger households, but this is one of the rare exceptions. Failing to meet the population growth implies that adding more people is simply obfuscating weaker households.
The second largest primary growth sector was the public sector, which has become a fixture on this list. Public sector GDP grew 0.3% in July, marking the 7th consecutive advance. Stat Can notes the biggest driver within the sector was public administration, in particular those for local, municipal, and regional governments. The sector also includes educational services and social assistance, which each respectively grew 0.2% in the month, about half the rate of administration.
By itself, public sector growth isn’t an issue that would get much attention. It becomes a bit of a red flag when it’s the primary growth for employment and persistently outpaces the private sector.
“Over the past three months, economic activity in the business sector has been growing at an annualized rate of just 0.8%, compared with 4.1% in the government sector,” explains Arseneau.
That means public sector growth is 5x that of the business sector. It’s another “only in recession” type indicator—government hiring was ramped up to create this barely-above water economy. If the narrative is this is a strong economy with the public sector providing 5x the growth of the business sector, it’s hard to imagine how much stimulus will be needed in a downturn.
The current state isn’t a strong setup for the economy. Slow growth that lags population and rising unemployment are ominous signs in this environment. It’s worsened by the fact the sole pillar holding up the economy is public administration, which combined with slow growth means higher tax liabilities—expected to slow the economy further.
“This means that even further slack is opening up in the economy, which will eventually put more downward pressure on inflation… Governor Macklem has stated that the Bank wants growth to pick up, and the trend does not seem to be cooperating, clearly raising the odds of more aggressive hikes—i.e., 50 bps in October,” said Porter.
bingo. People are fighting about the amount of government workers being hired, but the issue isn’t government employees. It’s the fact the gov is trying to conceal negative data with a haphazard immigration plan.
Immigrants are then easy targets to reduce (i.e. even the Libs are starting to brag about tapering them), but they just stacked a problem over the existing one in hopes we don’t notice how bad things are.
Well said, and many empty bank accounts agree
Increasing the size of government is indeed a problem (as well as mass immigration) because the government creates nothing. The private sector uses it’s own capital while the government robs Paul to pay Peter. The fact that the fed is the largest employer in Quebec and that the public sector now accounts for 25% of the jobs in Canada is a recipe for economic strife and negative growth
One can’t help but wonder if the inflation model changes contribute to the problem. We knew it would result in chronic underreporting, but we never consider that underrreporting inflation means over reporting for GDP.
“Canada’s Governments Are Expanding 5x Faster Than Businesses” Who pays for these jobs—short-term and long-term? Unfortunately, I worked in the private sector, competing on the Global Stage for eight different companies, most of which are gone or smaller than they once were. Competition is the weeding process for being uncompetitive. Now retired with no company pension.
The bureaucracy has grown to an unsustainable apex , crux obviously a factor. All smoke, mirrors and a tax base that props up these jobs , has already been drained of resources,thus the crashing economy hidden by ineptitudes and downright disillusionment. This regime has placed the economy on a downward trajectory that unless real world interventions are implemented will result in absolute and total disaster. The BOC can’t stop this now, with cuts taking up to 24 months to work their way through the economy variable mortgages and helocs will experience some immediate relief. Given the delinquencies on auto loans, regular bills , credit cards and no end to increasing food costs , recession has been here for some time. With Carney in play, miraculously the fudged economy will seemingly turn a corner at least in appearance before the next election, if there is one. In short, Canada seems in lockstep with an economic disaster not seen since the great depression. Well done Justin, PET would be proud.
We are at a phase where public administration and government employment is the only backstop.
In the next terminal phase, even drafts will not be mandatory, just that, the military will be the only employer in town. And then off with your behinds to fight Russia and China.
The beatings will continue until morale improves.
A government job will not save your house or condo. Prices collapsing across Canada as all the demand has shifted to the USA where deals on 142 million homes are in every State. Government workers seeing all their equity reduced to ashes as months go by. Lose 30K per month and soon you are out of a home or condo in Canada.
Canada has 20.5m employed people.
Of those, 4.4m are “public sector employees”. 1/5 of Canada’s workforce work for the government. A great deal of the money we make just pays their salaries. Kick the Liberals out next chance we get!!!
Source
Statistics Canada, Employment by class of worker, monthly, seasonally adjusted (x 1,000)
Table: 14-10-0288-02
I believe we’ve been in a recession for the last year.
With that being said I also see the end of it coming as the US goes into recession. Just like after 2008, many jobs will come to Canada since our wages are drastically less than paying US workers. Expect to see auto manufacturers start producing in Canada again and the GDP to grow.
Only reason our per capita product is down so bad is because of all the immigrants. I’m a college instructor so I know first hand from teaching them that the majority are lazy, want top pay for little work and lack hard work ethic. This isn’t to say our young generation isn’t the same. Time will change this though as they all realize they’re going to have to start helping our labour sectors and put in real work if they want to survive.
The Communist Broadcast Corporation is running a puff piece today. Of course it’s missing the per-capita GDP, the public sector growth, the BOC’s concerns and anything else that would add some clouds to the sunny ways.