By Jock Finlayson, ICBA Chief Economist
Statistics Canada’s recent release of the official national accounts data for 2023 provides an updated look at how the national economy performed that year, following an initial post-COVID jump in economic activity in 2022.
The revised data incorporate the effects of Canada’s near-record population growth in 2023. This proved to be an important impetus for consumer and government spending, which in turn led to faster-than-expected growth in overall gross domestic product (GDP).
But Canada’s surging population also set the stage for serial declines in “per person prosperity” – defined as real or inflation-adjusted GDP per person — over the course of the year. Real per capita GDP dropped 1.4% in 2023. And that trend has continued into 2024.
Figure 1 shows real GDP growth by province in 2023. B.C. and Alberta led the way, boosted by rapidly expanding populations fueled by hefty inflows of both permanent and temporary immigrants – and, in Alberta’s case, by increased net interprovincial in-migration. Larger populations lead directly to increased demand for housing, goods and services, thereby stimulating spending in these areas. In the Canadian context, immigration also expands the size of the workforce, as many newcomers soon become workers as well as consumers.
Figure 1
Of interest, the three Western provinces of B.C., Alberta and Saskatchewan handily outperformed Canada as a whole in top-line economic growth. However, like Canada, these provinces also saw real GDP per person fall in 2023, as population growth outpaced increases in economic output. Moreover, household spending per person was negative in almost every region of the country last year, as populations grew briskly at the same time as many consumers started to retrench in the face of steeper borrowing costs.
Nationally, the principal drivers of economic growth in 2023 were household consumption spending and international exports of goods and services. These two components of total spending made the biggest percentage point contributions to GDP growth last year. An expanding public sector also played a role – notably in B.C. where government spending on goods and services as well as on capital soared in 2023.
In contrast, investment fell in Canada in 2023, mainly due to significant weakness in the residential sector (non-residential investment rose modestly). Readers will recall that the Bank of Canada began to quickly hike its short-term policy interest rate in the spring of 2022, with the rate reaching 5% by mid-2023. Market-determined interest rates and borrowing costs increased in tandem. Housing and real estate were among the sectors most affected by the central bank’s monetary policy tightening. Tellingly, residential investment ended up being a drag on real economic growth in all ten provinces in 2023.
Figure 2 breaks down the components of real GDP growth for B.C. and Alberta in 2023. The outsized contribution of the government sector is clear in B.C.
Figure 2
The pattern of economy-wide spending evident in 2023 has shifted somewhat in 2024. Canadian exports have been notably softer than in 2022-2023. Residential investment has remained in the doldrums and is unlikely to turn around until interest rates have fallen further. Business non-residential investment is choppy and may weaken in the coming year as the Trump administration settles into power in the U.S. and proceeds with its agenda to hike tariffs, cut taxes and streamline federal regulation.
Finally, what about productivity – a topic that has been garnering more attention in Canada in the last year or so? Unfortunately, “labour productivity” – real GDP per hour worked – decreased in 2023, slumping by an alarming 2.2% across the aggregate Canadian business sector. In practical terms, this means growth in hours worked exceeded growth in the value of production or output in the Canadian business community. Every province experienced declining business sector productivity. This contrast with solid productivity gains in the U.S. business sector, resulting in a further widening of the cross-border productivity gap.
