Fall in Canada GDP Per Capita Caused By Rising Immigration Numbers

Canada’s economy has contracted to a level “unprecedented outside a recession,” at least partly due to the immigration-related population boom having reduced GDP per capita growth, the National Bank of Canada says.

A report released in December 2023/January 2024, says that “signs of an economic slowdown have been multiplying.”

“Indeed, third-quarter GDP data came in below economists’ consensus expectations, showing outright contraction, notably due to a drop in private domestic demand.”

“Consumption stagnated for the second quarter in a row, a stinging setback in the current demographic context characterized by record population increases.”

The recalculated GDP per capita is at an annualized contraction of 4.4% during the third quarter. Domestic demand is now the main concern for business owners in Canada.

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For five straight quarters, Canada’s GDP per capita has fallen.

This phenomenon can be explained by the boom in population that Canada is experiencing, according to economist Mikel Skuterud of the University of Waterloo. He compared the GDP of a country to a pie, divided by the population, with GDP per capita being the slice of the pie that every Canadian gets.

“I think you’d be hard-pressed to find any economist in Canada that doesn’t believe that the exceptionally high population growth rates we’re experiencing now have contributed to that decline in GDP per capita that we’re seeing,” Skuterud said, as per the National Post.

He also said, however, that immigration is not the only reason for this GDP per capita rut. Rather, “there’s other things happening right now in the economy” that would have hampered GDP and GDP per capita growth even if there were no population growth.

Simultaneous to the above-mentioned trend is the inflation rate, which is at 3.1 percent, and is causing the cost for shelters to rise at an annual six percent.

The rise in rental price is, according to the report, due to the rise in population.

Furthermore, the growth in people is causing more unemployment, as there are not enough jobs for the number of people coming to the country. The unemployment rate went up to 5.8% in November, in fact, which is an increase of eight-tenths in just 7 months.

The report also noted that a growing number of unemployed people who had worked in the last year found themselves out of work due to an employer’s decision, rather than their own.

Since the early 1980s, there has only been one rise of this magnitude outside a Canada recession – the 2001 tech bubble burst.

This trend, moreover, is not going to reverse anytime soon.

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While profits are down 22.4%, workers’ compensation is up by 6.8%. With these divergent trends in action, companies have difficult decisions to face that may result in a reduced appetite for hiring and – in some cases – job losses, according to the report.

“Overall, we expect the environment to remain difficult in 2024, as the economy has yet to feel the full effects of past rate hikes and interest rates remain restrictive, particularly in real terms.”

There is debate among economists about the extent to which population growth is to be blamed for Canada’s contracting economy. TD Bank, for example, drew attention in July to insufficient growth in the number of the calculation, which is tied to productivity issues.

As per Skuterud, long-term data does not show that growth or fall in immigration numbers has any impact on Canada’s economy.

While some will win, others will lose from increased immigration.