Canadians were warned about building a housing-based economy, now they’re approaching a lost decade. National Bank of Canada Financial (NBF) recently wrote to institutions to warn the country’s productivity is stagnating. As a result, so is the quality of life as real gross domestic product (GDP) remains at the same level it was 7 years ago—and it’s heading in the wrong direction.
Productivity and Real GDP Per Capita
Real GDP per capita is the inflation adjusted value of an economy’s output, divided by population. We know that rising real GDP is generally a good thing, since higher output tends to correlate with increased national wealth. However, in rare cases a country’s population growth will outpace its output.
In these circumstances, the aggregate GDP might be rising but the economy is less efficient. More people mean more consumption, but a decline means they’re producing less. That tends to indicate a declining quality of life, a mark of reversing progress.
Canada Is Quickly Approaching A Lost Decade of Stagnation
Canada is getting close to seeing a lost decade. The chart provided by NBF shows Canada and the US roughly tied for real GDP per capita in 2017, with the US climbing steadily until today. Canada sits at the same level 7 years later, and its trend is moving in the wrong direction.
NBF chief economist Stéfane Marion points to a quote from Nobel Laureate Paul Krugman to explain the issue: “Productivity isn’t everything, but, in the long run, it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.”
For good measure, Marion also points to Canadian GDP per capita purchasing power parity (PPP). This indicator looks at local purchasing power, then standardizes them against a single currency to facilitate cross country comparisons. “This underperformance has led to our GDP per capita [PPP] falling to 76% of that of Americans according to the World Bank,” he writes.
Canada Ignored Productive Growth & Got Left Behind
Canada recently reported productivity improved in the last quarter, the first positive over the past 7 quarters. “Unfortunately, this advance was not enough to salvage the year, and 2023 will go down in the record books as the third consecutive annual decline, the worst sequence in at least 41 years,” he explains.
Canada approaching a lost decade may surprise some, but it shouldn’t. The country received a number of warnings from prominent agencies, that building an economy focused on credit creation and housing isn’t sustainable. Rather than acknowledging these issues, the country doubled down on trying to stimulate housing demand. In the process, it’s also managed to send global investment fleeing for greener pastures in record volumes.
The OECD previously forecast real GDP growth that indicated quality of life would stagnate. Canada would occupy the growth spot that Greece did during the financial crisis, but for decades. That forecast is looking generous these days.
Two things:
1. Our economy has not absorbed our faster (relative the the US) growth in net immigration (4x the US rate: https://cis.org/North/Canada-Takes-Proportionately-Four-Times-Many-Legal-Immigrants-US#:~:text=The%20U.S.%2C%20a%20nation%20with,percent%20of%20the%20Canadian%20one).
2. Productivity increases are driven mainly by capital investment, and inflows to Canada have fallen off especially in the O&G sector.
Plus… is GDP a proxy for standard of living anymore? Many would argue that GDP does not correlate with standard of living pretty much at all. Natural disasters like floods and wildfires that destroy homes and livelihoods are a net add to GDP because of the economic activity required to replace lost assets… but would anyone affected say they are “better off” as a result?
Why do you have comments? You won’t post hardly anything anyone comments on.
We brought in more than 1 million immigrants last year in 2023. It takes time and effort to get them up and working. Trying to digest 1 million people when our population was only 39 millions. Maybe we need to recalibrate at bit how we think we should grow our economy. This is a big part of the problem. I am not surprise we running short on housing and our productivity pef capita is hicuping.
100% Stephane, and the link in my comment above shows immigration as a % of population–Canada has taken proportionally 4x the number of folks as the US and that affects the per capita GDP comparisons. It is surprising to me that a newsletter that is about the data didn’t do a better job on this topic.
That’s the point, it doesn’t. This is as dumb as seeing a crowded bus and saying, “this is really uncomfortable” and then you come along and say “it’s not uncomfortable, they’re building new busses now!”
If your quality of live slipped over the past 7 years, and ask any Millennial or Gen Z—it did, it’s little relief to say “well, one day your parents will die and it’ll be good!”
Hi Thomas, I completely agree quality of life has declined… and not just for the last 7 years. It is traceable to the 1980’s when real wage growth and GDP growth diverged after having been in lockstep post-WWII. I can’t believe there is a comment in this thread about how a company is trying to increase productivity by decreasing wages… the only thing that makes labour more productive is better tools/better capital investment. I have already made a comment that GDP is not a good proxy for “quality of life” anymore, either–it has not been for a very long time.
Are we really surprised, the federal Government of censorship of News on Social Media, Law Breaking and Controlling the MSM with Billions of dollars. This country is going to take a Decade to get back to where it was, only if the Conservatives win the next election.
“Canadian Standard of Living Plummets Lower, Approaching Lost Decade: NBF”
Can you Plummet Higher ???
That’s the worst showing since that other Trudeau was in office. I guess the economy won’t “balance itself”.
Great article and very insightful
Hm……I wonder why?
I work in manufacturing. There is an effort to increase productivity by lowering worker salaries. HR doesn’t know how to hire skilled workers.
That is the primary reason businesses are not becoming more productive in manufacturing. All skilled people leave and become salesmen because the work is not productive or rewarding because management solutions are always about cutting salaries and not about increasing productivity. Manufacturing management is a dinosaur here in canada
Trudeau messes everything up.
Congratulations everyone who voted liberal and NDP, you got what you wanted. Most people equal to each other stuck at the bottom of the ladder and no way to climb up. Perfect socialist society with just elites at the top such as well placed liberal and ndp members and govt workers, and almost no middle class.
Scary times ahead! I feel so bad for younger guys. They can’t even rent and live on their own. Parents are mostly homeowners with little or no extra money to help them. Education and work will not pay enough to survive forget saving and investing. This article is real predictions not too far away
You can be as negative as you want. You can choose any stat to make your point but when I take a walk, I see nice shiny new cars, lovely homes, clean well maintained streets, and well dressed well fed residents. We live in one of the best societies ever produced on this planet and you choose to try to make it look bad.
Is this a joke? Car repos are at a record, there’s never been more tent cities, and food bank lines are embaressingly long. It doesn’t matter if you’re in Vancouver or a small town, they all look the same.
But I do get that Boomers never leave their home and think everything from the doctor’s office and back is fine, so there’s no problem.
Its immigration. And then some of this relates to the exchange rate.
GDP is growing, unemployment is low, but yes, per capita we are worse off.
The problem with the “productivity is everything” quote is it ignores who actually OWNS the countries capital stock.
We used to use GNP, not GDP, but GNP looks at what a country owns, regardless of where it is located, and ignores the profits from things it doesn’t own.
GDP looks at what happens within a countries borders, regardless of who owns it.
So for example, The Cayman islands has billionaires. GNP would include if more billionaires move their. GDP would just look at what they spend there. The problem is, if you have a country with high levels of foreign ownership and branch plants, the profits get included in GDP but those profits flow out. So an African country with foreign owned mines, those profits leave and go the owners – the people living in that country never see those profits.
This is what people who want more foreign investment in Canada seem to forget. Canada though is not a debtor nation – about equal, but the problem is that our capital position is based on book value of when that investment was made, not its current value, and so we are worse off since most foreign investment in Canada is decades old – GM, Ford, oil companies, etc.
This is how things end up when you elect left wing governments. A few at the top, a few in the middle, and most people at the bottom.