Canada is seeing record immigration but its economy doesn’t resemble one that typically attracts this type of growth. The country’s gross domestic product (GDP) came in flat in October, marking a fifth month of stalled growth. Despite record population growth, this lack of performance is still primarily attributed to increased government stimulus. It’s a setup that doesn’t speak well for near-term economic performance, with a major bank expecting things to get a lot worse soon.
Canada’s Economy Has Failed To Grow For 5 Months, Failing To Meet Expectations
Canada’s economy isn’t growing despite a rapidly growing population. The latest official GDP numbers were unchanged in October, following similar results in September. Half of the 20 major sectors tracked failed to rise or showed an outright contraction.
This stands in stark contrast with an expected outlook that was significantly more optimistic. The consensus estimate had expected 0.2% growth in October, not the flat performance observed. Official estimates see 0.1% growth in November, but few would count that chicken before it hatches.
Canadian GDP Doesn’t Move Like This Outside of Recession
Canada’s economic performance would be considered lacking in normal times, but it’s downright concerning now. It has added a record number of people, which should be driving economic growth based solely on more people that require consumption of essentials. However, this is only obfuscating just how bad things have become.
“The reality is that the Canadian economy is in the doldrums, as evidenced by the sequence of 5 consecutive months without posting a single month of economic growth, something seen only during the 2008- 2009 financial crisis and the 2015-2016 slowdown attributable to the oil supply shock,” explained Matthieu Arseneau, chief economist National Bank of Canada (NBF).
Adding, “this is a bitter setback as population growth remains staggering.”
Government Spending Propping Up (A Lack of) Performance
The data isn’t just being padded by population growth, it’s also padded by government spending.
“Returning to the stagnation in October, the picture would have been worse were it not for the decent growth in government-related sectors (public administration, health, education), masking the weakness of the country’s private sector,” he warns.
“The latter [the private sector] has been struggling for some time, as evidenced by our in-house index, which shows that more than 2/3 of sectors are posting stagnation or negative growth over the past 6 months, a proportion observed only during the last two recessions (right chart).”
The private sector is a strong indicator of household health. Government spending tends to be used to stimulate an economy, not drive its growth. A cut back in private spending is typically a result of households experiencing (or worried) about an economic slowdown—indicative of what they’re seeing.
Government stimulus and rapid population used together are failing to produce any growth. That doesn’t speak well for the economy’s near-term performance.
A sentiment reflected by NBF. “We expect the Canadian economy to contract in the first half of the year, resulting in a decline of 0.2% for the year,” warns Arseneau.
