Recent economic data from Statistics Canada reveals a complex picture of the nation’s economic health, highlighting both challenges and opportunities. While Canada avoids the depths of past recessions, weak growth and declining per capita income raise questions about the quality and sustainability of the country’s economic expansion.
Persistent Weakness in Growth
The Canadian economy grew at an annualized rate of 1% between July and September, marking one of the weakest periods of growth outside a formal recession. This slow pace has persisted over the past two years, despite significant population growth, which has masked deeper underlying economic challenges.
A more telling metric, GDP per capita, has fallen for six consecutive quarters, matching a record set during the 1981-1982 recession. Since early 2023, per capita GDP has dropped over 3%, signaling a quality deficit in the growth Canada has achieved.
Policy Divergence: Harper vs. Trudeau
Comparing the economic records of Prime Minister Justin Trudeau and his predecessor, Stephen Harper, underscores different approaches to managing low-growth environments. Harper’s tenure featured slower headline growth (1.7% annually compared to Trudeau’s 1.9%) but stronger per capita performance, driven by private investment and resource development.
Trudeau’s policies have emphasized fiscal expansion and higher immigration to stimulate the economy, yet capital spending remains weak, and per capita economic outcomes have lagged. This divergence highlights a key policy debate: whether to prioritize faster growth with lower individual prosperity or slower, more sustainable growth that enhances per capita incomes.
Labour Strength vs. Business Struggles
Amid sluggish overall growth, Canadian workers are seeing robust wage gains. Household spending rose at an annualized rate of 3.5% in the third quarter, the strongest increase in over a year. The share of national income going to workers reached 51.3%, above the 25-year average of 50%. Falling interest rates are also boosting consumer confidence, fueling purchases of cars, appliances, and other goods.
However, businesses are facing mounting challenges. Corporate profits fell 2.9% in the third quarter and are down 28% from their 2022 peak. The share of national income going to corporate profits has declined to 12.6%, well below historical averages. Non-residential business investment dropped at an annualized rate of 11%, continuing a trend of weak capital spending since the pandemic.
A Question of Growth Quality
Canada’s economic challenges highlight a critical question: Should policymakers prioritize faster, lower-quality growth that supports business scale, employment, and government revenues? Or should they focus on slower, higher-quality growth that maximizes individual prosperity and long-term sustainability?
With household spending showing resilience but businesses pulling back, the path forward will require balancing these competing priorities. Achieving sustainable growth will depend on fostering investment, boosting productivity, and ensuring that economic gains are widely shared across Canadian society.