This article originally appeared in the Financial Post.
By Philip Cross, March 2, 2023
Tuesday’s release of the fourth-quarter GDP numbers nicely summarizes the reasons behind the Canadian economy’s perennial underperformance. Real GDP growth stalled, as increased spending by households and governments was offset by weak business investment and exports. This continues the pattern of sectoral growth that began with the Trudeau government’s advent in 2015 and was accentuated after the pandemic began in 2020: government spending and consumption up, investment and exports either down or stalled.
Over the last eight years, real GDP has risen only 12.3 per cent. The performance of Canada’s economy is even more abysmal when taking into account our recent surge in population. Population growth by itself increases aggregate demand, as more people means higher spending on everything from housing to food to clothing to the numberless items on Amazon’s and all our other retailers’ websites and shelves. Since the pandemic began, Canada’s real per capita GDP has grown a microscopic 0.1 per cent, well below the 4.1 per cent recorded in the U.S. over the same period. This large divergence reflects both higher total GDP growth in the U.S. (5.0 per cent there, 4.0 per cent here) and much faster population growth in Canada (3.9 vs. 0.9 per cent).
The origins of Canada’s chronic weak economic growth lie in lacklustre business investment and exports, both of which have receded since 2015. Since then, the volume of business investment in Canada has fallen 17.6 per cent. The last four quarters actually mark something of an improvement: investment was flat. The investment intentions data from Statcan’s annual survey show no reversal of weak investment in 2023, however. Nor can the now almost decade-long slump of capital spending be blamed solely on our beleaguered mining (including oil and gas) industry: an astounding 40 per cent of Canada’s major business sectors (responsible for 29 per cent of capital outlays) have cut investment since 2014. Meanwhile, the volume of Canada’s merchandise exports has fallen 2.6 per cent since the onset of the pandemic and remains below its high in 2015.