20 May 2024

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Canada’s Declining Prosperity

Canada’s growth crisis is worsening, as evidenced by the latest data from Statistics Canada. Per capita GDP saw another decline in the fourth quarter of 2023, marking the fifth drop in six quarters and the most sustained decrease in over three decades. Adjusted for inflation, per capita GDP is now lower than it was nine years ago, in the fourth quarter of 2014.

While many news outlets highlighted that the overall GDP didn’t decline but rather saw a marginal 0.2% increase, suggesting Canada narrowly avoided a recession, the issue lies deeper than cyclical fluctuations. Canada’s economic challenges are more structural than immediate, reflecting a slowdown in potential growth rather than a temporary dip below capacity.

This isn’t a recent development but a trend spanning decades. In the mid-20th century, Canada experienced annual economic growth rates exceeding 5%. However, this rate has steadily declined over subsequent decades: from around 4% in the 1970s to approximately 1.1% in recent years. Notably, the economy is now growing slower than its population, leading to a decline in per capita GDP, a critical metric for assessing living standards.

The perception of Canada as one of the wealthiest nations is outdated. While it once ranked among the top OECD countries in GDP per capita, as of 2022, Canada had slipped to 15th place. Over the past four decades, Canada’s per capita GDP growth has been outpaced by 22 other OECD members, including countries that were previously less affluent.

Comparisons with the United States underscore Canada’s relative decline. In 1981, Canada’s per capita GDP was 92% of that of the U.S., but by 2022, it had dwindled to just 73%. Even within Canada, regional disparities are stark, with provinces like Alberta ranking poorly compared to U.S. states and others falling below American counterparts in terms of wealth.

One significant factor contributing to Canada’s economic challenges is its lagging productivity growth. Despite Canadians working longer hours on average than their global counterparts, Canada ranks 18th in output per hour worked among OECD countries. This trend has worsened since 1981, particularly compared to the United States, where productivity growth has outpaced Canada’s nearly threefold since the early 2000s.

Population aging exacerbates these economic woes, driving up costs, particularly in healthcare and pension obligations. With fewer people of working age to support retirees, the burden on the economy intensifies. Faster, sustained economic growth is imperative to address these challenges, yet it remains largely neglected in political discourse.

Addressing Canada’s productivity decline requires strategic investment, particularly in areas like machinery and equipment. However, recent trends show a concerning shift towards investing in residential structures over productive assets, potentially hindering long-term economic competitiveness.

In essence, Canada’s growth crisis demands urgent attention and concerted policy efforts to reverse decades-long trends and secure a prosperous future for all Canadians.