Canada’s economy has experienced an unprecedented contraction, a situation not seen outside of a recession, as outlined in a recent analysis by National Bank Financial. This decline is, in part, attributed to a significant population increase that has placed pressure on per-capita GDP growth.
The bank’s monthly economic report notes that signs of an economic slowdown have been accumulating. Consumption has stagnated for two consecutive quarters, which is concerning given the record population growth during this time.
The recalculated GDP per capita, initially estimated to have contracted by 2.4 percent, is now reported to have contracted by 4.4 percent during the third quarter. To illustrate, economists compare GDP to a pie divided by the population, and per capita GDP represents each Canadian’s theoretical slice of that pie. When the population increases, the size of each slice decreases.
Mikel Skuterud, an economist at the University of Waterloo, explains that high population growth rates in Canada have likely contributed to the decline in GDP per capita. However, the issue is more complex, as GDP can also rise if newcomers to the population contribute to economic growth. Additionally, other factors, independent of population growth, impact GDP.
The report highlights insufficient growth as a central problem. While Canada’s inflation rate is at 3.1 percent, shelter costs are increasing by six percent annually, particularly in rental housing. The bank attributes rising rental prices to the significant population increase.
Canada’s unemployment rate is 5.8 percent, indicating that hiring is not keeping up with demographic growth. In seven months, the unemployment rate has grown by ten-eighths of a percent. This magnitude of increase has occurred only once outside a Canadian recession since the early 1980s.
The Bank of Canada has maintained its key interest rate at five percent, the highest level since 2001, in response to slowing consumer spending that is affecting inflation. For five consecutive quarters, Canada’s GDP per capita has declined, impacting living standards.
The first nine months of 2023 witnessed the fastest population growth since Confederation, with around one million people joining the Canadian population, primarily due to immigration. However, there is debate among economists about the extent to which population growth is responsible for the contracting economy. Some argue that long-standing productivity issues are at the root of the problem.
In conclusion, while immigration has contributed to Canada’s population growth, various factors influence the country’s GDP, and discussions should encompass the broader economic context and its impact on different segments of the population.