Canada’s economy has been making headlines for leading the G7, but many aren’t feeling the effects. That’s because gross domestic product (GDP) per capita has barely moved. Rather than growing the economy through economic improvements, Canada has only added more consumers through immigration. Adjusting for population, US households have seen their economic picture grow 10x faster over the past decade. The OECD previously warned Canada was heading into dangerous territory with their reliance on a debt-driven housing bubble.
Gross Domestic Product Per Capita
Gross domestic product (GDP) is a term everyone throws around but never really considers what it means. It’s the total value of goods and services produced in a year, in aggregate. Since people spending more on goods and services generally means improved wealth, the data is viewed as a proxy for the health of an economy.
There are a few problems with this measure but the biggest one is the aggregate doesn’t consider population. Adding more people generally means adding more goods and service consumption and production. Afterall, more people need more things. That’s why looking at GDP per capita is so important.
GDP per capita measures it per person, attempting to minimize the influence of population. If 10 people are making the same as 8 people two years before, things are getting worse. They aren’t actually progressing, despite the increase in the number of people that need necessities. In fact, despite low or flat growth when looking at aggregate GDP—things might actually be getting worse for people. That’s why we’re looking at GDP per capita.
Canadian GDP Isn’t Growing Nearly As Fast As It Should Be
Canada might be one of the fastest growing economies with the fastest growing population. However, when adjusting to see how that looks on a per capita basis, it’s getting left behind.
By itself, last year’s annual growth sounds impressive. GDP per capita came in 4.9% higher in 2022 for Canada. However, one needs to consider that virtually everywhere showed substantial growth last year due to the comparison period. Back in 2021, the pandemic produced artificial constraints on trade that restricted the amount of GDP that could be generated—so 2022 should have been larger. It doesn’t sound quite as impressive when viewed in context, coming in at just over half of the growth seen in the US (+8.7%) over the same period.
Canadians Have Seen Economic Growth Stagnate For The Past Decade
Canadian and US gross domestic product per capita over the past decade. In US dollars.
Source: World Bank; Better Dwelling.
The Past Decade Saw GDP Per Capita Grow 10x Faster In The US
In fact, Canada has persistently lagged the US over the past decade. Over the past 10 years, the country saw 4.3% growth according to World Bank calculations. That works out to less than a tenth of the growth observed in the US, which saw GDP per capita rise 47.4% over the same period. Canada has made international headlines for its aggregate GDP growth, but rarely have people looked at how that looks adjusted for population.
US GDP Per Capita Has Grown Over 10x Canada In A Decade
The percentage change for GDP per capita since 2012.
Source: World Bank; Better Dwelling.
Canada’s lack of growth in this area is complex, but a good portion can be attributed to its housing bubble. Large gains have diverted funds from more productive areas like manufacturing, and put them into non-productive housing. At the same time, this has led to the rapid accumulation of debt for end users who are buying a necessity—shelter.
Debt allows a person to spend their future income today, minus further interest costs. In other words, consumption from a future time period is moved up, leaving a consumption gap that needs to be dealt with later. It makes sense, just not if the easy borrowing is excessive. That tends to inflate home prices, and divert future income even further.
The issue isn’t expected to resolve itself anytime soon either. The OECD previously warned the housing debt addiction will land the country dead last when it comes to GDP per capita of any advanced economy. Not just this year, but for a period of at least 40 years.
With Canada’s GDP per capita currently showing negative quarterly growth, it doesn’t appear any lessons have been learned.
