Key measure of economic wellbeing in Canada basically flatlined since 2015
Canada’s economic prosperity is stagnating, at best. Many readers probably feel this, based on their own experiences trying to earn a living and pay the bills. Others may sense it from observing the wellbeing of their children or neighbours or the health of local small businesses.
This isn’t just about high inflation rates over the last two years. It also speaks to deeper problems with our economy; problems that continue to weigh on the growth of real incomes for many households and individuals.
When Justin Trudeau led his Liberal Party to a majority government back in 2015, he pledged to support “the middle class and those seeking to join it.” However, judging by the trend in inflation-adjusted incomes, his government has done little to bolster the fortunes of the (never-defined) “middle class.”
Consider what’s happened to the total output of the Canadian economy—what economists call gross domestic product (GDP)—measured on a per-person basis. Because Canada has a rapidly growing population, it’s important to account for demographic change when looking at how much output the economy produces in any given year. All things equal, an expanding population leads to more production both because the workforce is increasing and also because adding more people automatically pushes up the demand for goods, services and housing.
But a recent report from the Desjardins credit union shows that Canada lags behind many of its peers (including the United States, Germany, Australia and the Scandinavian countries) in the level of GDP per person, a common measure of prosperity. Before Trudeau took office, Canada’s GDP per person roughly matched the average for the developed economies as a group. Since then, “an increasingly wide gap has opened up with other advanced economies,” according to Desjardins.
After stripping out inflation, GDP per person in Canada has been almost flat since 2015. Moreover, Canada ranks near the bottom among all developed economies in improving this core indicator of economic wellbeing. Yes, the Canadian economy has been growing over the past seven to eight years, but this mainly reflects a larger population and workforce coupled with the impact of inflation. When GDP figures are adjusted to account for population growth and inflation, it turns out that Canada has enjoyed very few gains in per-person prosperity.
And the situation is getting worse. Statistics Canada reports that real GDP per person stood at $56,206 in 2019 before the onset of COVID-19. It dropped sharply to $52,741 in 2020 before rebounding over the course of 2021-22 as the economy reopened. But in 2022, real GDP per person remained below the 2019 level and was scarcely higher than five years earlier.
How will things evolve going forward? Using economic growth forecasts embodied in the 2023 federal budget and assuming annual population growth of 1.8 per cent, even by 2027 real GDP per person—again, the key indicator of how Canadians are faring in economic terms —will remain below its pre-pandemic level and be only a smidgeon higher than in 2017.
Most Canadian policymakers—including Prime Minister Trudeau and his cabinet—prefer to ignore the reality of a stagnant economy that’s no longer generating meaningful increases in real incomes for most citizens. That’s not good enough. Canadians should insist that governments devise sensible pro-growth policies that will help lift the incomes of families and workers in the coming years.
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