A reality check on the Federal Government’s Fall Economic Statement

November 7, 2022
David Williams

The Trudeau Government’s 2022 Fall Economic Statement makes the following dubious claim (page 27):

“There is no country better placed than Canada to weather the coming global economic slowdown and thrive in the years ahead.”

Respectfully, we disagree. Canada is heading into a global inflation-fighting recession – not like the recessions of 2000, 2008 or 2020 but rather like the ones last seen in the early 1980s and early 1990s – shouldering several serious and largely unaddressed structural weaknesses:

  1. The OECD projects Canada will be the worst performing economy among 38 advanced economies over both 2020-30 and 2030-60, with the lowest potential growth in real GDP per capita. Low growth in per capita incomes makes it hard for households and businesses to carry large debt loads as interest rates rise.
  2. The principal factor underlying the OECD’s gloomy projection is Canada’s serially weak growth in labour productivity (real value-added per hour worked). Canada is projected to rank seventh-last for labour productivity over 2020-30 and dead last over 2030-60.
  3. Canada is the world’s 4th most indebted advanced country as at 2022Q2, with household, corporate and government debt combining to a total of 325% of GDP. The debt servicing ratio (interest and principal payments as a share of income) of Canada’s private sector (households and non-financial corporations) is by far the highest among G7 countries. That constitutes a structural weakness that will make it harder – not easier – for the country to weather higher interest rates and a global recession.
  4. Canada’s business capital stock per worker has barely increased in decades (except in Alberta) and has been declining outright since 2015. On average, Canadian firms barely invest enough to cover annual depreciation on a per worker basis. Under the Trudeau government, the principal means of expanding the productive capacity of the economy is by adding more people to the population and workforce in major cities. In contrast, a capital- and technology-intensive strategy focused on raising the productivity of the total workforce is far more likely to set the country up for success during the digital revolution (4th Industrial Revolution) and generate the per capita income needed to fund the future health care costs of an ageing population.
  5. Canada has retreated from international trade and global markets since about 2000, with exports representing a declining share of national GDP. In fact, exports are about the same share of Canada’s economy as in 1980. In contrast, almost all other advanced economies have increased exports of goods and services as a share of GDP over time. While the reasons are complex, one implication is that Canada has become a less attractive location in which to deploy capital and to grow the larger firms that the evidence shows are more inclined than smaller firms to participate in international trade and commerce. The data also confirm that large, exporting firms tend to devote resources to capital investment, innovation and R&D and pay higher real wages than small, domestic-focused firms.

Which matters more in “an economy that works for everyone”: GDP, or GDP per person?

On page 6, the 2022 Fall Fiscal Update states the following:

“Canada’s economic recovery from the pandemic recession has been strong, with real gross domestic product (GDP) having returned to pre-pandemic levels in the fourth quarter of 2021—the fastest recovery of the last three recessions. Despite slowing global economic growth, the Canadian economy has demonstrated resilience, having seen strong growth in the first half of 2022, with real GDP growing by 3.2 per cent at an annual rate—by far the fastest pace in the G7. Canada’s economy is now 102.6 per cent the size that it was before the pandemic.”

While strictly true, what people mainly care about is not how big is the economy’s total income but how big is their share of the income pie. Celebrating superficial growth in topline GDP sits awkwardly with one of the themes expressed in a government document that aspires to create “an economy that works for everyone.”

The recovery in topline GDP during 2021 and early 2022 was driven entirely by growth in total hours worked, not labour productivity (Figure 1). Labour productivity (real value-added per hour worked), which is what matters for living standards, has slumped. Total hours worked has grown due to sharply falling unemployment rates (evidence of an overstimulated, overheated and inflationary economy) and booming labour force growth (due to red-hot population growth).

Ottawa’s turbocharged temporary and permanent immigration levels were largely responsible for driving a whopping 703,000 (1.8%) increase in Canada’s population over the past year to July 1st, with most of that population increase concentrated in the major cities (Figure 2). It was the largest absolute population increase in the country’s history and the fastest growth rate since 1987.

Figure 1

Canada's GDP recovery is due to labour force growth, not labour productivity

Figure 2

Rapid population growth is the mainstay of Ottawa's Economic growth strategy

But Canada’s GDP per person has not recovered since the pandemic, unlike other countries

Overlooked in the Fall Economic Statement is that GDP per person is what matters in “an economy that works for everyone,” not GDP. Figure 3 shows that Canada’s real GDP per person in 2022 Q2 was $55,848, which was 0.5% ($533 per person) lower than in 2019 Q2. Again, Figures 1-3 demonstrate that while population growth does expand topline GDP through growth in the labour force and total hours worked, it has little or no impact on labour productivity and GDP per person (Williams and Finlayson, 2021). The latter variables are the ones that affect people’s standard of living. They are also the ones that governments should care about too.

Figure 3

Canada GDP per capita still 0.5% smaller than pre-pandemic

Figure 4 shows Canada’s GDP per person compared to peer countries since 2019. To allow international comparison, levels of GDP are converted to U.S. dollars using purchasing power equivalent exchange rates.[1]
The U.S., Australia, the G7 country average and the OECD country average have all recovered and increased real GDP per person relative to before the pandemic. Canada has not. Yet nowhere is this important fact recognised in the Fall Economic Statement.

Figure 4

Canada's GDP per capita has not recovered

Canada’s GDP per person will likely fall further in 2023

The Fall Economic Statement provides two scenarios for Canadian real GDP growth in 2023 (page 45). In the baseline scenario (the government’s central assumption), projected GDP growth is barely positive at +0.7%. In the “downside scenario,” indicating a deeper and more protracted recession, GDP growth in 2023 is ‑0.9%.

Let’s assume rapid population growth continues in the range of 1.1% to 1.8% going forward. This implies growth in real GDP per person of -0.4% to -2% in the federal government’s baseline scenario for 2023, and -1.1% to -2.7% in the downside scenario.

If we take the approximate mid-point of that range and assume population growth of 1.4% going forward, this implies real GDP per person growth of -0.7% in the baseline scenario for 2023, and -2.3% in the downside scenario.

Thus, there is no scenario in which Canada’s real GDP per person does not fall in 2023 and a decrease of 1-2% seems most likely.


Looking through the veneer of booming population growth, Canada’s economy is in rough shape (Williams 2022). Canada’s GDP per person failed to recover its pre-pandemic level, unlike other advanced countries, and it appears likely to fall again by around 1-2% in 2023.
Canada is thus entering a global recession in a weak structural position, not a strong one as claimed in the Fall Economic Statement.

The country is shouldering several glaring structural weaknesses: the world’s 4th most indebted advanced economy; the highest private sector debt-servicing burden among G7 countries; the worst prospects in the OECD for growth in GDP per person and labour productivity over the next 40 years; business capital investment that is barely keeping up with depreciation – resulting in a flat or shrinking capital stock per worker; and a two-decade retreat from international trade with exports diminishing as a share of GDP.

Young Canadians entering the workforce today face the unhappy prospect of the lowest growth in average real incomes per person among OECD countries for the next forty years (Williams 2021 and Williams and Finlayson 2022). The Fall Economic Statement was a missed opportunity to acknowledge the structural problems ingrained in Canada's economy and begin to get serious about addressing them.

Purchasing power parity (PPP) exchanges rates are the rates of currency conversion that equalise the purchasing power of different currencies by eliminating the differences in price levels between countries (see OECD).

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