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Adam Zivo: Don’t let the Liberals fool you. The economy is doing worse than they say

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9 months ago

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Canada's economy is contracting.
Based on GDP figures, Canada’s economy contracted 1.1 per cent in the third quarter. But the country’s economic situation is much worse when per capita growth is considered, writes Adam Zivo. Photo by Getty Images / iStock

The latest GDP data from Statistics Canada shows that our economy shrank by 1.1 per cent in the third quarter of 2023. While this is already a sobering figure, the reality is much worse than many realize, as this data does not account for the fact that economic growth is being artificially inflated through high immigration.

Once you adjust for population growth, it’s clear that our standards of living are actually declining at an unprecedented rate, which the federal government seems happy to ignore. This problem will almost certainly continue until the public starts to understand the economy in per-capita terms and demands more accurate economic indicators from its political leaders.

This switch in mindset should not be difficult to make.

A country’s GDP is determined by how large and productive its population is. Imagine that you govern a village of 100 people where each individual produces $1 in economic value per year — the annual GDP of your village is thus $100.

If you want to increase your village’s GDP — let’s say to $150 — you need to either increase your population or improve the productivity of existing residents (or some combination of both).

Let’s say that you meet your growth target solely by improving productivity and that your village now has 100 people making $1.50 a year. This is a great outcome because your citizens have become 50 per cent richer.

Now let’s take the opposite and say that you rely solely on population growth to meet your GDP target, meaning that you now have 150 villagers producing $1 a year. This is a suboptimal but acceptable outcome, because while villagers aren’t getting richer, they also aren’t getting poorer.

But now let’s imagine that the population of your village doubles and inhabitants start making only $0.75 a year. While you still reach your target GDP of $150, each person in your village has actually gotten poorer.

Now imagine that you decide to ignore the impoverishment of your citizenry and instead narrowly focus on growing overall GDP by rapidly increasing the population, even if that comes at the expense of per capita income. That would be really bad, right? And it would miss really obvious points about the nature of economic growth, right?

Well, welcome to Canada.

We have a bad habit of inflating our economic successes by discounting the impacts of population growth. This problem isn’t unique to us — many countries promote overall GDP while playing down per-capita indicators — but the distortionary effects are greater in the Canadian context because our population has been increasing faster than those of most other developed countries.

For example, between 2011 and 2015, Canada and the United States enjoyed near identical annual real GDP growth rates (around 2.15 per cent) — but Canada’s population grew slightly faster than the United States’ (one per cent versus 0.85 per cent), which meant that Americans actually slightly outperformed us on a per capita basis.

Then the Trudeau government came into power and, through immigration, boosted our population growth rates to around 1.3 per cent. While this buoyed overall GDP, it concealed deepening economic stagnation.

In 2019, just before the pandemic, Canada’s real GDP grew by 1.9 per cent — which suggested that the economy was doing well and that growth had hardly slowed from the late Harper years. In fact, focusing exclusively on overall GDP during this period would have given the impression that Canada was a top performer among the G7 and was growing faster than France and Britain.

But much of this growth was a mirage caused by immigration. When looking at per-capita numbers, not only had Canada’s growth rates actually slowed by 50 per cent relative to the early 2010s, the country’s advantages over its peers generally disappeared.

So even before the pandemic, the Canadian economy was hiding its anemia behind an immigration boom.

 

But the situation truly blew up over the past year when our population growth rate spiked to an unprecedented 3.15 per cent. For context, Canada is now the ninth fastest-growing country in the world, ahead of most of sub-Saharan Africa and in close competition with Uganda.

For Canadians to experience increased living standards under these circumstances, our overall real GDP growth rate has to be greater than 3.15 per cent — but it doesn’t come close to that threshold. Even the optimistic economic forecasts from earlier this year, which estimated 1.4 real GDP growth in 2023, concealed a per capita economic contraction of roughly 1.85 per cent.

A recent report by the National Bank of Canada estimates that the 1.1 per cent real GDP contraction we saw this autumn actually amounts to a 4.4 per cent contraction in per capita terms — which the bank called “unprecedented outside a recession.”

This should call for a major rethink of our economic strategy, as well as a new approach to how we discuss our growth — which is why, for the past year, economic analysts have advocated that the federal government pay more attention to per capita growth.

Yet this advocacy has fallen on deaf ears. The Trudeau government remains fixated on creating the illusion of economic resiliency by boosting overall GDP at the expense of Canadians’ pocketbooks.

So now the onus now falls on everyone else to normalize per-capita indicators that show the true costs of our high-immigration, low-productivity growth model. Only then can the federal government’s con game become untenable.

 

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Economy

Energy stocks help lift S&P/TSX composite, U.S. stock markets also up

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September 17, 2024

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TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.

The S&P/TSX composite index was up 34.91 points at 23,736.98.

In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.

The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.

The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.

The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.

This report by The Canadian Press was first published Sept. 17, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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Economy

Canada’s inflation rate hits 2% target, reaches lowest level in more than three years

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September 17, 2024

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OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.

The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.

Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.

Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.

The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.

The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.

“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.

Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.

“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.

The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.

The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.

A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.

Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.

Its key lending rate currently stands at 4.25 per cent.

CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.

The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.

This report by The Canadian Press was first published Sept. 17, 2024.

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Economy

Federal money and sales taxes help pump up New Brunswick budget surplus

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September 16, 2024

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FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.

Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.

The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.

Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.

Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.

Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.

Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.

This report by The Canadian Press was first published Sept. 16, 2024.

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