Canada's standard of living on track for worst decline in 40 years

Canada's standard of living on track for worst decline in 40 years.

When a country experiences a population surge like Canada has, economists argue that measuring GDP per person provides a better picture of its standard of living. According to a new study by the Fraser Institute, this standard is headed for its biggest decline in 40 years.

The study by Grady Munro, Jason Clemens, and Milagros Palacios examines the three worst periods of decline and recovery in real GDP per person in Canada since 1985. These periods include 1989 to 1994, which featured a recession, 2008 to 2011, the aftermath of the global financial crisis, and the current period starting in 2019.

This latest period is unique because, despite a brief recovery in mid-2022, GDP per person began to decline again and, by the end of 2023, was significantly lower than in 2019.

“This lack of meaningful recovery suggests that since mid-2019, Canada has experienced one of the longest and deepest declines in real GDP per person since 1985,” the study’s authors stated.

From April 2019 to the end of 2023, inflation-adjusted per-person GDP fell by 3 percent, from $59,905 to $58,111. This decline is only surpassed by the drops of 5.3 percent from 1989 to 1992 and 5.2 percent during the financial crisis, according to the study.

The current decline has lasted 18 quarters, making it the second-longest in the past 40 years. Only the decline from 1989 to 1994, which lasted 21 quarters, was longer.

Crucially, signs indicate the decline is not over. GDP per person in the fourth quarter of 2023 was down 0.8 percent from the previous quarter, suggesting a continued downward trend, the study noted.

“The decline in incomes since Q2 2019 is ongoing and may still exceed the downturn of the late 1980s and early 1990s in both length and depth,” the authors warned.

“If per-capita GDP does not recover in 2024, this period may mark the longest and largest decline in per-person GDP over the last four decades.”

The Fraser Institute is not alone in highlighting this issue. In a recent Financial Times article, Ruchir Sharma, chair of Rockefeller International, identified Canada as one of the countries experiencing a significant decline in real per-capita income growth and a drop in their share of global GDP.

A leader among the so-called “breakdown nations,” Canada’s GDP per capita has been falling by 0.4 percent annually since 2020, the worst rate among 50 developed economies.

“Widely admired for how it weathered the global financial crisis of 2008, [Canada] missed the boat when the world moved on, driven by Big Tech instead of commodities,” Sharma wrote. “New investment and job growth are being driven mainly by the government.”

Additionally, Canada not only lags behind most developed economies but also trails almost all U.S. states, noted Trevor Tombe, a professor of economics at the University of Calgary, in a column last year for the Hub.