{"id":9070,"date":"2024-06-04T04:00:52","date_gmt":"2024-06-04T04:00:52","guid":{"rendered":"https:\/\/www.rbc.com\/en\/thought-leadership\/canadas-growth-challenge-why-the-economy-is-stuck-in-neutral\/"},"modified":"2025-03-26T04:54:40","modified_gmt":"2025-03-26T04:54:40","slug":"canadas-growth-challenge-why-the-economy-is-stuck-in-neutral","status":"publish","type":"rbc_tl","link":"https:\/\/www.rbc.com\/en\/thought-leadership\/the-growth-project\/canadas-growth-challenge-why-the-economy-is-stuck-in-neutral\/","title":{"rendered":"Canada\u2019s Growth Challenge: Why the economy is stuck in neutral"},"content":{"rendered":"

Canada has a growth problem.<\/strong> The economic momentum that propelled the country through the 20th century has faded in the 21st, and appears to have worsened since the pandemic. Higher interest rates have slowed per-capita output since 2019, but the problems run deeper than that. Our economy is now smaller than it was in 2019 when adjusted for inflation and immigration, and pretty much in the same place it was a decade ago. <\/p>\n

Globally, we\u2019ve fallen behind most major economies since 2000. At the turn of the century, the economic output of the average Canadian was on par with Australia. Today, Australians are almost 10% more productive, while their economy has grown 50% per person faster than Canada\u2019s over the quarter century. We\u2019re further behind the United States. Canada is 30% less productive than the U.S. and closer to lower-income states like Alabama in terms of economic performance than tech-rich California or New York. The result: We\u2019ve fallen from the 6th most productive economy in the Organisation for Economic Co-operation and Development in 1970 to the 18th as of 2022. <\/p>\n

Pretty much every Canadian has something at stake. The productivity gap with the U.S. stands at about $20,000 per person a year, putting Canadians\u2019 wages roughly 8% below their U.S. counterparts. The gap has been even more taxing for capital. Anyone who invested $1,000 in Canada\u2019s main stock index in 2000 would have $4,400 today; the same investment in the U.S. S&P 500 index would be worth $6000\u2014a more than 35% difference.<\/p>\n

Our relatively low productivity \u2014the amount of production and income generated per hour worked in the economy\u2014 has been held back by a shortfall in investment, especially outside real estate, construction and public services like hospitals. As a result, we\u2019ve not been able to capitalize on the immigration boom that has added seven million people\u2014most of them working-age and well-educated\u2014since the turn of the century and offset the retirement wave of baby boomers. <\/p>\n

The deindustrialization of many parts of Canada has cut into the country\u2019s overall prosperity. Manufacturing is half what it was to the economy in 2000, while mining has also shrunk. Oil and gas\u2014once powerhouses of investment and growth\u2014are showing signs of renewed strength, but investment levels remain far below what they were a decade ago. Agriculture has been a rare standout, as we\u2019ll explore later in this report.<\/p>\n

A positive change in productivity could be the most significant factor in lifting economic growth, and the prosperity that goes with it. We have the natural and human resources that much of the world is looking for, and our access to major markets\u2014Europe, Asia, and critically, the U.S.\u2014is the envy of the world. With those strengths, Canada\u2019s growth challenge can quickly become a growth opportunity, with significant benefits for Canadians. Simply closing the productivity gap with the U.S. would add roughly $20,000 of GDP per person per year.<\/p>\n

Slowing Canadian GDP growth led by softening productivity gains<\/div>\n
Average annual percent change, business sector (sum of bars equals per-year GDP growth)<\/div>\n
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