Canada is projected to be the next Greece, and not because of the good stuff. The Organization for Economic Co-operation and Development (OECD) has forecast Canada’s economy will fall behind. The group sees Canada’s real gross domestic product (GDP) per capita growth falling to last place. An expert warns young Canadians won’t have the same opportunity as previous generations. They’re also likely to fall behind their peers in other advanced economies.
Canadian GDP Growth Has Outperformed The G7
First, let’s look at where Canadians have been over the past few years. From 2000 to 2007, Canadian real GDP per capita grew 1.6 percent per annum, tied with the OECD average. It was the highest growth of any G7 country, even beating out the United States by 0.1 points per year. Canadians were winning when it came to seeing their quality of life improve.
Once the Great Recession hit, Canada began to slow down significantly. Real GDP per capita grew 0.8% per annum from 2007 to 2020, failing to outperform the OECD. It’s in the middle of G7 performance, with only the United States and Germany beating Canada. In general, the G7 had a terrible performance during this period.
For over a decade, G7 countries pursued what they perceived to be more advanced monetary policy. Central bank research shows some critical parts of that pursuit were wrong. Ah well, just a generation of people screwed. Better than paying 4% interest for a mortgage, amirite?
Canada Is On Track To Becoming The OECD’s Next Greece
Canada is set to become the OECD next Greece, as long-term projections show low growth and high debt. Canada’s potential real GDP per capita is just 0.7 percent per annum, tied dead last with Italy in the OECD. This is significantly below the US (42% lower) and the OECD average (46% lower). In the previous period ending in 2020, Greece had occupied the last place spot.
OECD Real GDP Per Capita Forecast Per Annum (2020 To 2030)
OECD forecast annual real gross domestic product (GDP) per capita growth per annum.
Source: OECD; Better Dwelling.
Given all of the information we know, it doesn’t appear Canada is learning any lessons. The potential real GDP per capita forecast from 2030 to 2060 is just 0.8 percent per annum. Canada’s forecast is 20% below the US and 27% below the OECD average for the period, respectively. This is tied dead last with South Korea, putting Canada last for the next 40 years.
Canada Won’t Provide The Same Tailwinds For Quality of Life Improvements It Once Did
A Business Council of British Columbia (BCBC) analysis expresses serious concerns. “Past generations of young Canadians entering the workforce could look forward to favorable tailwinds lifting real incomes over their working lives. That’s no longer the case,” explains David Williams, BCBC’s Vice president of policy.
“If the OECD’s long-range projections prove correct, young people entering the workforce today will not feel much of a tailwind at all. Rather, they face a long period of stagnating average real incomes that will last most of their working lives,” he adds.
When looking at a country, most people look at how lives have improved over the past decade. They then use this to project what the future will look like, and that’s a bad plan. Some of the policies used for growth in countries like Canada borrowed future growth.
The value proposition will drop as other countries outpace Canada’s growth for decades. First advanced economies will close the gap between opportunities and quality of life. As they continue to outperform, Canada will fall to the other side of that gap. As Canada falls behind global standards, the quality of life will decline.
The data shows this has already begun. Canadian Millennials have seen G7 peers advance faster over the past decade. As young Canadians face more considerable hurdles, this will weigh on their standard of living. “On average, Canadian living standards and our quality of life relative to other countries are set to decline as other countries make their economies more productive,” says Williams.
Forecasts are based on the current environment, and things can change. However, they tend to require dramatic purges of economic inefficiencies first. Greece went through a painful adjustment that ultimately will create a healthier environment for future growth. It’s not recovering because it doubled down on loading up the country on debt.
“Long range projections are not certain. But in providing a glimpse of a possible future, they offer us an opportunity to reflect and make a course correction lest they become a reality,” he adds.
Canada has embraced cheap growth by way of residential investment and debt. This works short-term, but residential investment is non-productive with little contribution to future growth. Debt is the value of future productivity borrowed and used today, leaving less for the future. The more the country leans on these drivers, the more painful it will be to try and correct the course.