Canada’s Economy Ranks Third-Lowest in OECD for Per Capita GDP Growth

Canada’s Economy Ranks Third-Lowest in OECD for Per Capita GDP Growth

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Canada’s Economy Ranks Third-Lowest in OECD for Per Capita GDP Growth cover

Canada's economy is in trouble.

You may recall that back in March, the Bank of Canada announced it was time to “break the glass” and fix Canada’s faltering labour productivity and decreasing business investment problem, largely by attracting new private capital (hint hint, natural resource development).

According to the Fraser Institute, Canada's economic struggles don't stop there. The group's research shows that Canadians have been getting poorer relative to residents of other countries in the Organisation for Economic Cooperation and Development (OECD), which consists of over 30 nations including Australia, France, Germany, Italy, Japan, South Korea, Mexico, Norway, Spain, the U.K. and the U.S.

With an affordability crisis on our hands, this report, among others, should be a significant cause of concern for our governments and lead them to take severe and immediate action.

One clear way to boost the economy in the near- to medium-term would be to expedite the development of our natural resources.

Report Highlights

Figure 1 - Fraser Institute - Canada and US GDP per capita timeline

Courtesy of Fraser Institute

• Between 2002-2014, Canadian income growth as measured by gross domestic product (GDP) per capita kept pace with the rest of the OECD. From 2014-2022, however, Canada’s position declined sharply, ranking third-lowest among 30 countries for average growth over the period.

• Between 2012-2022, Canada lost ground compared to key allies and trading partners such as the United States, United Kingdom, New Zealand, and Australia, with Canadian GDP per capita declining from 80.4% of the US level in 2012 to 72.3% in 2022.

• Looking to the future through 2060, Canada’s projected average annual growth rate for GDP per capita (0.78%) is the lowest among 30 OECD countries.

• Canada’s GDP per capita, which exceeded the OECD average by US$3,141 in 2022 and was roughly equivalent to the OECD average in 2022, is projected to fall below the OECD average by US$8,617 by 2060.

• The root cause of Canada’s declining long-term growth in GDP per capita – recent and projected – is very low or negative growth in labour productivity reflecting weak investment in physical human capital per worker.

How to Turn Canada's Economy Around?

Canadians are getting poorer - fraser institute

Courtesy of Fraser Institute

While Canadians once enjoyed a standard of living above the OECD average as measured by GDP per capita, such a lead has been “squandered in recent years,” according to the Fraser Institute. Recommendations made by the Vancouver-based research organization to reverse Canada’s current course include:

  • developing policies to encourage improved labour efficiency
  • increases to capital-labour ratios
  • improving employment ratios across the population.
  • improving the country’s overall climate for business investment
  • attracting new business investment
  • implementing policies to spur productivity growth
  • reducing the large and growing size of government

Labour Productivity of Canadian Industries

Figure 4 - historical and projected GDP per capita, Canada and the OECD

Courtesy of Fraser Institute

It’s no secret that Canada’s natural resource sectors have a significant labour productivity advantage over other segments of the economy. For example, let’s take a look at the labour productivity of a handful of natural resource sectors and subsectors compared to the national average (2023, in Chained 2017 dollars per hour) [1]:

  • Crop production – 92
  • Forestry and logging - 51
  • Mining and oil and gas extraction – 196.3
  • Oil and gas extraction – 356.4
  • Conventional oil and gas extraction – 248.8
  • Non-conventional oil extraction (oil sands) – 578.4
  • Mining and quarrying (except oil and gas) – 148.9
  • Metal ore mining – 152.8
  • Iron ore mining – 252.9
  • Gold and silver ore mining – 110.9
  • Copper, nickel, lead and zinc ore mining – 183
  • Canadian industry average – 63.6

As shown above, these sectors are generally the most labour-productive segments of the Canadian economy.

Labour productivity measures the hourly output of a country’s economy and is primarily driven by business investment, technological progress, and human capital development. Higher productivity is directly linked to improving living standards through higher consumption of goods and services [2].

The National Bank of Canada (NBF) stated earlier this year that Canada is experiencing falling labour productivity and investment levels, which have eroded Canadians' living standards over the past several years.

Natural Resources Can Help

Chart 1 - Fraser Institute - Canadians are getting poorer - Copy

Courtesy of Fraser Institute

According to NBF and the Fraser Institute, attracting new business investment to develop our vast abundance of natural resources could help Canada’s economy reverse course.

LNG Canada, for example, is just one of many natural resource projects accounting for tens of billions of dollars in capital investment that create direct and indirect jobs, generate long-term government revenues, and induce trickle-down economics that support other sectors of the economy such as retail and restaurants.

Upon approval of the $40 billion LNG export facility, Prime Minister Justin Trudeau said as much.

“Today’s announcement by LNG Canada represents the single largest private sector investment project in Canadian history. It is a vote of confidence in a country that recognizes the need to develop our energy in a way that takes the environment into account, and that works in meaningful partnership with Indigenous communities.”

LNG Canada is a shining example of just how much economic activity natural resource development brings to communities across the country. According to project proponents, the LNG export facility [4]:

  • Has employed more than 30,000 Canadians, with more than 9,000 workers employed at the export facility's main site in Kitimat in January 2024 alone
  • Has acquired more than $4.7 billion in contracts and sub-contracts to local, Indigenous and other B.C.-based businesses to date
  • Is expected to partake in increasing the B.C. government’s natural gas royalties from $684 million in 2023-24, up to $1.43 billion by 2027 as a result of increased production related to LNG production

Another great example of the significant economic opportunities potentially afforded to Canadians by natural resources includes B.C.'s $800 billion mining opportunity.

Canadians Cannot Afford to Miss Resource Development

Completion of major natural resource projects in Canada has dropped 37 percent

With an affordability crisis on our hands and a struggling economy, it is clear that Canadians can no longer afford to miss out on opportunities to develop the massive endowment of natural resource wealth we have been blessed with.

Some alarming statistics:

  • Job-creating business investment in Canada’s oil and gas sector has dropped 52.1% since 2014
  • The number of completed major natural resource projects has decreased by 37% between 2015 and 2023
  • Over the past ten years, our country has ranked third last in GDP per capita growth amongst the OECD nations.
  • It takes an average of 18 years to get from discovery to production for new mines, and 19 months longer for LNG project approvals compared to the U.S.

The writing is on the wall.

Canada needs to start implementing pro-resource policies that will help our industries continue to be an economic strength. Accounting for nearly one-fifth of our national GDP [2], 45% of our manufacturing output [3], 58% of our total merchandise exports [2], and supporting millions of families across the country [2], it’s time that we start supporting the development of our natural resources, just like these industries have supported us for so long and will continue to do so for a strong and prosperous economic future – if we let them.

SOURCES:

1 - https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=3610048001

2 – https://natural-resources.canada.ca/science-and-data/data-and-analysis/10-key-facts-on-canadas-natural-resources/16013

3 – https://macdonaldlaurier.ca/canadas-resource-sector-protecting-the-golden-goose-philip-cross-jack-mintz-paper/

4 - https://www.biv.com/news/commentary/opinion-launching-canadas-lng-industry-will-bring-billions-to-bcs-economy-8398967