In a TD Economics report released Thursday, Marc Ercolao, an economist at TD Bank, said that regardless of “solid headline growth in recent years,” Canada trails the U.S. and other economic peers regarding its standard of living, or real gross domestic product (GDP) per capita. He said that in 2014-15 oil price shocks contributed to underperformance in this area, which has continued following the COVID-19 pandemic.

“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,” Ercolao said in the report. 

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

Ercolao said that despite a pandemic-related economic downturn, growth in Canada’s economy has been aided by “supercharged immigration” and a “robust population,” that spurred consumption and demand for housing. 

However, Ercolao said that strong levels of growth in the economy do not always equate to prosperity. He said when adjusted for Canada’s rising population, the economy “reveals a picture that leaves much to be desired.” 

“This country’s lagging standing in per-capita GDP is not new, but it has been worsening since the pandemic,” Ercolao said. 

He said while it may be easy to “point the finger” at fast-paced population growth, it would be an “oversimplification” to do so. He said that drastic increases in the nation’s population are far more recent than the downward trajectory of real GDP growth since the 1980s. 

“At the core of the issue is a sagging productivity showing that has been plaguing the Canadian economy for many years despite the well-intentioned moves of this countries’ policymakers to try and address it,” Ercolao said. 

On a regional basis, he said economies that deal mainly in commodities, like Alberta and Saskatchewan, record the highest levels of per capita GDP, but their relative strength has “come under some pressure over the past decade.” 

CAUSES 

Various factors contribute to Canada’s lack of economic productivity, according to Ercolao, including things like a lack of research and development (R&D) spending. He said the lack of funding in this area has led to an “innovation gap,” where Canadian R&D spending has been in “perpetual decline” for the last 20 years. 

“As of 2021, Canadian R&D spending accounted for roughly 1.7 per cent of GDP, half of the current U.S. share and lower than most other countries,” Ercolao said. 

According to Ercolao, other causes of Canada’s relatively low productivity include fewer investments since 2015 in non-residential structures, machinery and equipment, and intellectual property.