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Growth in gross domestic product (GDP), which is the total value of all goods and services produced in the economy annually, is one of the most frequently cited indicators of economic performance. To assess Canadian living standards and the current health of the economy, journalists, politicians and analysts often compare Canada’s GDP growth to growth in other countries or in Canada’s past. But GDP is misleading as a measure of living standards when population growth rates vary widely across countries or over time.
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Federal Finance Minister Chrystia Freeland recently boasted that Canada will experience the “strongest economic growth in the G7″ in 2022. In this she echoes the then prime minister, Stephen Harper, who said in 2015 that Canada’s GDP growth is “head and shoulders above all else. G7 partners over the long term.”
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Unfortunately, such statements do more to obscure the public’s understanding of Canada’s economic performance than to illuminate it. Recently, our aggregate GDP growth has been driven primarily by population and labor force growth, not productivity improvements. It is not primarily a result of Canadians becoming better at producing goods and services and thus generating more real income for their families. Rather, it is the result of more people working. That increases the total amount of goods and services produced but does not translate into higher living standards.
Let’s look at the numbers. From 2000 to 2023 Canada’s annual average growth in real (ie, inflation-adjusted) GDP growth was the second highest in the G7 at 1.8 percent, just behind the United States at 1.9 percent. That sounds good – until you adjust for population. Then a completely different story emerges.
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Over the same period, Canada’s real growth rate the person GDP (0.7 per cent) was significantly worse than the G7 average (1.0 per cent). The gap with the United States (1.2 percent) was even larger. Only Italy performed worse than Canada.
Why the reversal of results from good to bad? Because Canada had by far the fastest population growth rate in the G7, averaging 1.1 per cent per year — more than twice the 0.5 per cent experienced in the G7 as a whole. Combined, Canada’s population increased by 29.8 percent during this period, compared to just 11.5 percent in the G7 as a whole.
Beginning in 2016, sharply higher immigration rates have led to a marked increase in Canada’s population growth. This increase has masked historically weak economic growth per person over the same period. Between 2015 and 2023, under the Trudeau government, real economic growth per person averaged just 0.3 percent. That compares with 0.8 per cent annually under Brian Mulroney, 2.4 per cent under Jean Chrétien and 2.0 per cent under Paul Martin.
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Canada does not lead the G7 or do well in historical terms on measures of economic growth that make simple adjustments for our rapidly growing population. In fact, we have become a growth laggard and our living standards have largely stagnated for the better part of a decade.
Ben Eisen, Milagros Palacios and Lawrence Schembri are analysts at the Fraser Institute.
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