CANADA’S LIVING STANDARDS nd ON ALARMING TRACK: STUDY
Per-person GDP heading toward 40-year low
If Canada’s per-capita gross domestic product does not recover in 2024, the decline since mid-2019 may be the longest in the last four decades, a new study has found.
“Despite claims to the contrary, living standards are declining in Canada,” said Grady Munro, policy analyst at the Fraser Institute and co-author of Changes in Per-person GDP (Income): 1985 to 2023.
Released Thursday, the study found that from April 2019 to the end of 2023, inflation-adjusted per-person GDP declined from $59,905 to $58,111 or by three per cent.
This decline is exceeded only by the decline in 1989 to 1992 (-5.3 per cent) and 2008 to 2009 (-5.2 per cent).
The study assessed changes in quarterly per-person GDP, focusing on periods of decline and recovery, including length, depth, and recovery time. It found Canada experienced nine such periods between 1985 and 2023.
The three most severe periods, based on length and depth, were Q2 1989 to Q3 1994, Q3 2008 to Q4 2011 and Q2 2019 to Q2 2022.
The decline starting in Q2 2019 is unique as it briefly recovered in Q2 2022 before declining again, remaining below Q2 2019 levels by Q4 2023. While Canada’s GDP has grown in recent years, driven by high population growth and labour supply, GDP per person has fallen.
If not stabilized in 2024, the decline could be the steepest and longest in four decades, the study warns.
“The severity of the decline in living standards should be a wake-up call for policymakers across Canada to immediately enact fundamental policy reforms to help spur economic growth and productivity,” said Jason Clemens, study co-author and executive vice-president at the Fraser Institute.
Per Statistics Canada data, labour productivity has followed a similar pattern. The fourth quarter of 2023 marked the first time productivity increased since the beginning of 2022, following six quarters of declining or stagnant labour productivity.
In a speech in March, Carolyn Rogers, Bank of Canada senior deputy governor, called for improved labour composition, enhanced multifactor productivity and increased investment in capital to boost productivity.
“You’ve seen those signs that say, ‘In emergency, break glass.’ Well, it’s time to break the glass,” Rogers said.
She stressed improved access to training and re-skilling programs for workers and ensuring new entrants are well-prepared by educational institutions would help boost productivity, as well as leveraging the skills of new immigrants effectively, rather than being stuck in low-wage jobs.
Rogers added that support for small and medium sized enterprises, which lack economies of scale, would increase competition and drive innovation and efficiency.
Rogers also said that limited competition in Canada has been linked to weak business investment.
“Simply put, businesses become more productive when they’re exposed to competition,” she said. “Competition drives companies to become more productive by innovating and by finding ways to be more efficient. In doing so, competition can make the whole economy more productive.”