Canada’s economy was being outperformed by many of its peer countries before the COVID-19 crash of 2020 due to lags in key sectors such as business investment, says a public policy think tank.
Clemens says the relative underperformance started over a decade ago and has been “worsening,” whether it’s measured by living standards, investments, or performance of the labour market in terms of employment and productivity.
The study is not focused on the five most recent years but instead covers the last full business cycle, from 2007 to 2019. Business cycles are phases in the economy marked by expansions and recessions, with 2007 marking the start of the “Great Recession” in the United States with the mortgage crisis.
Canada’s gross domestic product (GDP) grew by 22.5 percent over the period, which puts it in 14th place; the middle of the pack among 32 OECD countries.
The study’s author, economist Francisca Dussaillant, points to limitations in relying solely on GDP figures given the disparity in population size and growth between countries.
Dussaillant notes that Canada saw a “significant influx” of newcomers during the period, with a population growth rate of 14.3 percent. By comparison, the United States grew by 9.6 percent and Australia by 16.7 percent, while Greece shrank by 3 percent.
When measuring GDP per capita, a common indicator to measure living standards, the study says Canada experienced a relative decline compared to the OECD average.
Canada’s per-person GDP rose 7.2 percent from 2007 to 2019, ranking 19th among 31 OECD countries for which data for every year during that period was available. This is lower than the average OECD increase of 11.5 percent. The United States saw growth of 12.7 percent over the period and Australia 10.8 percent.
Canada’s GDP per capita stood at US$52,7100 in 2013, while that of the United States was US$53,360. As of 2024, Canada has made modest gains, reaching US$54,870, whereas the U.S. GDP per capita is 56 percent higher, at US$85,370.
“Our population is growing so fast that we do not have enough savings to stabilize our capital-labour ratio and achieve an increase in GDP per capita,” they wrote in a report published Jan. 15.
Regarding investment, the Fraser Institute study says Canada was above the OECD average in 2007, as measured by the ratio of total gross fixed capital formation (GFCF) to GDP. Investment began declining in 2013, however, and fell below the OECD average by 2016.
Study author Dussaillant writes that the 11.1 percent fall in business investment from 2007 to 2019 is a “particularly stark indicator of this trend.”
“Its poor investment performance suggests Canada might be facing challenges in keeping its economy vibrant over the long term,” said Dussaillant.
Canada also lagged behind the OECD in terms of labour productivity, marking an increase of 10.3 percent in GDP per hour worked compared to the OECD average of 11.2 percent.
Regarding labour force participation and employment rate, the study says Canada experienced “relative stability,” while noting the public sector workforce grew faster (17.3 percent) than the private sector workforce (13.3 percent).
