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.
