Canada’s economic decline is about to get serious for all of us

Today, Canada’s productivity is now at the very bottom of the G7 Nations. Photo Credit: iStock.

Recently published economic statistics and analysis have disclosed that the country’s current economy and the future prosperity of Canadians are not promising. The latest dire assessment came this week when Carolyn Rogers, the number two official at the Bank of Canada, delivered the frank warning: “I hope I’ve been clear about the pressing need for Canada to increase productivity. I’m saying that it’s an emergency—it’s time to break the glass.”

The senior deputy governor of the bank explained that the Canadian business community needs to urgently boost investment in order to increase productivity and, in this way, the country’s economy will be better able to withstand inflationary pressures. More significantly, Canadian businesses will be better able to compete and begin to close the widening gap of productivity between this country and the United States.   

Rogers explained: “Productivity is a way to inoculate the economy against inflation. An economy with low productivity can grow only so quickly before inflation sets in. But an economy with strong productivity can have faster growth, more jobs and higher wages with less risk of inflation.” 

She warns that in Canada it is “increasingly urgent that we turn the situation around.”

The economic equation concerning productivity is critical for Canadians’ standard of living. Though the country’s productivity has been waning for decades, under the current Trudeau government it has taken a noticeable dive and, coupled with the business community’s lack of confidence, this is a serious cause for concern. 

Statistics Canada reports that the labour productivity of Canadian businesses rose a mere 0.4 per cent in the fourth quarter of 2023. This was the first “increase” in a year-and-a-half; Canada’s productivity rate had fallen for six straight quarters. The annual productivity figure for 2023 decreased by 1.8 per cent. Today, the level of productivity in Canada’s business sector is near the levels of the Trudeau Liberals’ first fiscal year 2016-17. 

Rogers assessed that the three major factors causing a chill on business investment and a pull on the country’s productivity is 1) lack of competition, 2) policy and regulatory uncertainty, and 3) the unstable business climate at home and abroad. The third factor is, in part, impacted by global market conditions, but the first two factors are within the federal government’s purview. 

Though the Bank of Canada deputy governor did not state it outright, she did suggest that the current government’s approach to business requires an adjustment to re-establish business confidence that will lead to new investment. It is most telling that, since Prime Minister Justin Trudeau took office, Canada now ranks 44th out of 47 of the member countries of the Organization for Economic Co-operation and Development (OECD) for its business investment.     

Today, Canada’s productivity is now at the very bottom of the G7 Nations. When comparing our numbers with the richest countries in the world, Canada has slipped from its traditional top-ten rankings (sixth in 1981) to now sitting at 15th in GDP per capita and 22nd in GDP per capita purchasing power. The U.S. is ranked seventh and eighth respectively – continuing to widen the gap between our countries’ living standards. Canada’s economic growth has fallen behind countries like Austria, Ireland, Australia, and Finland. 

This sobering set of facts has Globe and Mail columnist Andrew Coyne observe: “Canada is no longer one of the richest nations on Earth. Country after country is passing us by.”

The stagnant movement in Canada’s productivity is perhaps best put into perspective when comparing the country’s rate with our southern neighbour. Back in 1984, the Canadian economy was producing 88 per cent of the value generated by the American economy per hour. In 2022, Canadian productivity had fallen to just 71 per cent of that of the U.S.  This dramatic decline in the country’s comparative productivity with our leading trading partner is reflective of the business policy decisions made by Canadian governments.  

In a direct comparison of economies of the American States and Canadian provinces, Canada is clearly the “poor cousin.” Consider the findings of economic professor Trevor Tombe of the University of Calgary who factors most Canadian provinces lag far behind almost all U.S. states. Tombe notes: “Ontario, for example, has a per-person level of economic output that is similar to Alabama… The Maritimes are below Mississippi, and Quebec and Manitoba lag behind West Virginia. Only Alberta exceeds the U.S. average of $76,000, but even Canada’s strongest economy ranks 14th overall.” 

Economist David Rosenberg provides an insightful commentary on Canada’s productivity and competitiveness. In a Financial Post column this week, Rosenberg writes: “There has been no capital deepening or productivity growth in Canada in eons because the massive spending at the government level has continued to crowd out private-sector investment. All the spending that was used to combat the pandemic has become a permanent feature of the budgetary landscape. The level of program spending in Ottawa today is 35 per cent higher than it was pre-COVID-19.”

Rosenberg criticizes the ballooning size of the government: “On a per-capita basis, government program spending is 27 per cent higher than it was in 2019 and almost double the average of the past 40 years…. The government incursion into the economy in this country is so acute that the public sector now comprises 27 per cent of GDP.”

As bad as the current state of the economy is, the forecast for Canadians’ future quality of life and prosperity appears to be worsening. According to the OECD, Canada will be the worst performing economy and Canadians will have the slowest growth in living standards through to 2060. 

In commenting on the OECD forecast, the Canadian Coalition for a Better Future testified at a parliamentary committee this fall: “On a per capita basis, our economy is not only stalled, it’s actually contracting… If things don’t change, we’ll soon be talking about a lost decade of productivity.”

Lakehead economic professor Livio Di Matteo observed: “We are on track to becoming a relatively poorer country with a more fractious political system that seems unable to get things done.”

Canadians instinctively know that our standard of living has slipped. According to a recent study conducted by the federal government’s privy council, 69 per cent of Canadians are worrying about their future prosperity. In fact, it has gotten to the point that more than one in three (36 per cent) Canadians hold out no hope of attaining the standard of living their parents enjoyed. This coincides with a 2021 research survey report by the Department of Finance that found more than a third of Canadians believe the country’s best years are “behind us.” Finance’s Quality of Life survey asked: “Looking into Canada’s future, would you say the best years are ahead of us or behind us?” Survey says:  37 per cent said, “behind us,” 32 per cent said “ahead of us” and 31 percent had no comment.

This, sadly, brings into light a secret RCMP report that made headlines last week, suggesting Canadians sense of disillusionment may turn ugly in the coming years. The RCMP warns the Trudeau government that the country may descend into civil unrest once citizens realize the hopelessness of their economic situation. The report projects that Canada’s current situation “will probably deteriorate further in the next five years.” It reads: “The coming period of recession will … accelerate the decline in living standards that the younger generations have already witnessed compared to earlier generations. For example, many Canadians under 35 are unlikely ever to be able to buy a place to live.” 

If the statistics, reports and forecasts are accurate, the “lost decade” has had a consequential impact on the country’s productivity and Canada’s economic decline is about to get serious for all of us. 

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