The National Bank of Canada Financial (NBF) has recently alerted institutions about the stagnation of the country’s productivity. Consequently, the quality of life is also stagnating as the real gross domestic product (GDP) remains at the same level it was seven years ago, and it seems to be going downhill.
The Real GDP per capita, which is the inflation-adjusted value of an economy’s output divided by its population, is generally considered a positive indicator as it correlates with increased national wealth. However, there are instances where a country’s population growth outpaces its output.
In such situations, even though the aggregate GDP might be on the rise, the economy becomes less efficient. An increase in population implies more consumption, but a decline indicates less production. This is usually a sign of a declining quality of life and a reversal of progress.
Canada is on the verge of experiencing a lost decade. The data provided by NBF shows that in 2017, Canada and the US were roughly on par in terms of real GDP per capita. However, while the US has been steadily climbing, Canada remains at the same level 7 years later, and the trend seems to be negative.
Stéfane Marion, NBF’s chief economist, refers to a quote from Nobel Laureate Paul Krugman to elucidate 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.”
Marion also highlights the Canadian GDP per capita purchasing power parity (PPP), an indicator that examines local purchasing power and standardizes it against a single currency for easier cross-country comparisons. He notes, “This underperformance has led to our GDP per capita [PPP] falling to 76% of that of Americans according to the World Bank.”
Canada recently reported an improvement in productivity in the last quarter, marking the first positive in the past seven quarters. However, Marion explains, “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.”
The fact that Canada is nearing a lost decade may come as a surprise to some, but it shouldn’t. The country had received numerous warnings from notable agencies about the unsustainability of an economy centered on credit creation and housing. Instead of addressing these issues, the country intensified its efforts to stimulate housing demand, which resulted in global investment seeking more promising opportunities elsewhere in record numbers.
The OECD had previously projected a stagnation in real GDP growth, suggesting that the quality of life would remain static. Canada was expected to occupy the same growth spot as Greece during the financial crisis but for a much longer period. This forecast now appears to be overly optimistic.
