Canada’s economy peaked long before the pandemic when measured on a per capita basis


There’s a good reason you may be feeling Canada’s economic recovery, and it’s because of how it’s measured. Canada’s gross domestic product (GDP) increased in the third quarter of 2021 and is just below the pre-2020 peak. Aggregate GDP measures are only useful for the size of an industry, not for its impact on people. For the latter, we should consider GDP per capita, adjusted for population size. Canada’s GDP per capita shows the economy contracted before 2020 and growth is slower than expected.

GDP per capita

Measuring gross domestic product (GDP) per capita is simply adjusting production for the workforce. Aggregated figures can distort a picture and imply greater growth when this is not the case. By adjusting for population, you can see if an economy is getting stronger or just getting bigger. It is not a common measurement in Canada, but most international organizations use it. It was also used to define recessions.

The impact may not be very clear, so let’s take an example. Imagine that your portfolio has 10 shares of a stock purchased at $10/share and has a total value of $100. Let’s say the stock drops to $9/share, you buy 2 more shares at the new price, and your portfolio reaches $108. If your portfolio is measured the same way overall GDP is measured, it is 8% higher. That’s huge growth, and it looks like you’ve made a lot of money. In reality, you suffered a loss of $10, or 10% of the initial funds. The poor performance was concealed by looking at aggregate rather than population performance. It’s GDP to GDP per capita, in a nutshell.

Measuring in this way can make a profound difference in the picture of an economy’s performance. Countries with little or no population growth are likely to see little difference. Countries with high population growth may seem to be booming, but things could actually get worse. An economy with little or no growth per capita benefits very few people. Overall GDP growth is largely a measure of vanity.

Canada’s GDP measured per capita loses a fifth of its growth

Canada’s GDP looks very different when examined on a per capita basis. Real GDP showed a quarter-over-quarter growth of 1.34% in the third quarter of 2021. On a per capita basis, it is below 1.09% for the same quarter. Almost a fifth of the growth was due to population, not productivity. It was also a relatively slow neighborhood for the population. On the one hand, Canada has a right to brag about its growth. On the other hand, Canadians don’t see huge benefits (well, maybe owners).

Canadian real GDP growth relative to GDP per capita

The annual percentage growth of the inflation-adjusted value of GDP for aggregate and per capita measures.

Source: Statistics Canada; Live better.

Annual growth shows a similar pattern where the economy is driven by the average. Annual real GDP growth reached 3.97% in the third quarter of 2021, but adjusting per capita, it drops to 3.40%. It’s an important number for real growth, but it’s common for any country after a period of recovery. About 1 in 7 dollars of growth was simply due to a larger group of people, not an improving economy.

The most interesting finding is when GDP peaked and a “recovery” would occur. In aggregate terms, real GDP peaked in the fourth quarter of 2019, which has come as no surprise to anyone since all of this in the first quarter of 2020. The most recent report for the third quarter of 2021 shows the economy is just 1 .4% lower than the current pre-recession peak. Growth per capita gives very different insights.

Canadian real GDP vs GDP per capita

The inflation-adjusted value of GDP for aggregate and per capita measures, in Canadian dollars.

Source: Statistics Canada; US Federal Reserve; Live better.

GDP per capita peaked when we innocently walked around with no idea what 2020 had in store for us. Real GDP per capita peaked in the second quarter of 2019, two full quarters ahead of aggregate GDP. The last quarter is 2.9% below the peak of GDP per capita, which means that the situation is about twice as bad as it looks. The issue pre-dates 2020, but has been obscured by the aggregate.

Ultimately, this raises an important point: why does GDP matter? Countries boast of overall growth, especially when compared to other countries. However, this makes almost no sense and does not tell whether a country is benefiting from it. Does the economy rely entirely on world leaders who have bragging rights? If not, why use GDP (overall or per capita)? It has nothing to do with quality of life. Especially when growth has been unproductive.


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