Fall of Prosperity Indicator ‘Unprecedented Outside a Recession,’ Says National Bank

A National Bank sign is seen in Montreal on May 30, 2016. The Canadian Press/Paul Chiasson

A key indicator to measure living standards has dropped for the fifth consecutive quarter in Canada, with the latest reading being called “unprecedented outside a recession” by the National Bank.

The bank’s Monthly Economic Monitor for December and January says that GDP per capita recorded an annualized contraction of 4.4 percent in the third quarter.

The indicator measures the economic output per countries’ populations. Statistics Canada said in a mid-November analysis that per capita output and business productivity are “trending lower” and below pre-pandemic levels.

A reduction in productivity is a key factor in a drop of GDP per capita, while rapid population growth can also have an impact on the equation.

Statistics Canada released third quarter population growth data this week which show an increase of 430,635 people, the fastest quarterly growth since 1957.

Economists from Canada’s big banks have been raising concerns in recent months about this rapid population growth amid demand-fuelled inflation and a housing crunch.

National Bank economists say in their financial note that the rise in rental prices is attributable to the “staggering increase in population.”

Despite the population growth, the bank notes that consumption has stagnated for two consecutive quarters, calling it a “stinging setback in the current demographic context characterized by record population increases.”

The bank’s analysis also says that the main concern of businesses has shifted from labour shortages to lack of demand.

Statistics Canada similarly noted in a November analysis that population growth was outpacing employment growth.

The unemployment rate was 5.8 percent in November, a rise of 0.8 percent since April.

“There has only been one rise of this magnitude outside a Canadian recession since the early 1980s, when the tech bubble burst in 2001,” say National Bank economists.

The economic slowdown is attributable to the Bank of Canada raising its policy rate at the fastest pace in history to deal with inflation, which it helped create with its COVID-19 stimulus.

Reaction

Conservatives have made affordability issues their central message, blaming Liberal government policies for the high cost of living.

Deputy Tory Leader Melissa Lantsman commented on the latest GDP per capita data and said it proves the “heartbreaking stories” being heard across the country.

“Canadians are getting poorer. Poorer than our neighbours in the U.S. and poorer than they were last year,” she wrote on X Dec. 21. “This is the result of higher taxes, bigger deficits and crippling red tape.”

According to International Monetary Fund data, Canada’s GDP per capita is $70,652, while the U.S.’s sits at $106,687.

World Bank data from 2022 puts Canada in 24th place globally for GDP per capita, immediately ahead of the United Arab Emirates and behind Israel.

Finance Minister Chrystia Freeland was asked about the declining indicator during a House of Commons committee meeting in late November, but she skirted around the question.

“Canadians should take comfort from the fact that we’re predicted to have the strongest economic growth in the G7,” she said.

“I’m asking you about GDP per capita,” protested Tory MP Philip Lawrence. “Canada’s population has swelled in recent years ...each Canadian is getting poorer. They’re getting poorer minister, this is an issue.”

TD Bank economist Marc Ercolao also noted the trend in a July analysis, saying Canada is lagging the U.S. and other advanced economies in terms of living standards, adding that “little turnaround appears to be on the horizon.”

But he cautioned against pointing the finger at population growth. “There may be a tendency to pin the blame for Canada’s sagging per-capita showing on the country’s rapidly-growing population base given that it has inflated the denominator of the calculation,” he wrote.

“However, at the crux of the problem is insufficient growth in the numerator, which in turn is tied to longstanding productivity issues.”