Population growth ‘masked’ Canada’s ‘recession-like economic backdrop’: RBC
Though Canada’s economy is not technically in a recession, economists say it “feels like one,” given the current economic circumstances, as high population growth prevented an economic contraction.
Nathan Janzen, RBC assistant chief economist, and RBC economist Carrie Freestone said in a report Wednesday that as per-person output is declining in Canada’s economy, population growth “prevented outright declines in Canada’s gross domestic product (GDP).” The report notes that this is occurring alongside unemployment rate increases that would be expected in a typical recession.
“Higher interest rates alongside decades-high inflation in 2022-23 ate away at household purchasing power. Weaker demand spurred a rise in the unemployment rate of a size that historically only happens in recessions,” the report said.
“But decades-high population growth has masked this recession-like economic backdrop. Canada has added 2.1 million additional consumers since mid-2022.”
Additionally, the report noted that for six of the past seven quarters, real per-person output has fallen alongside rising unemployment. According to the report, per capita GDP has fallen to 3.1 per cent below 2019 levels.
“The 1.6 percentage point uptick in the unemployment rate is smaller than in those seen in larger recessions, and that increase is from half-century post-pandemic lows,” the report said.
“But since the 1970s, Canada has never had a trough to peak increase in the unemployment rate of that size without the economy going through a recession.”
Going forward the economists said interest rate cuts by the Bank of Canada will “eventually” ease the economic pressures households face and as purchasing power rises, they predict per-capita growth will turn positive during the second half of 2025.
Canada’s recession-like economic circumstances occurred after high inflation, followed by an “aggressive” interest rate hiking campaign by the Bank of Canada in 2022 and 2023, the report said.
The economists noted the only thing that prevented negative GDP growth in consecutive quarters – the typical definition of a recession – was a “wave of new consumers arriving from abroad.”
“Canada’s population grew by six per cent from Q2 2022 to Q1 of this year,” the report said.
“Consumer spending accounts for more than half of GDP, and many of those new arrivals (a larger share than the Canadian-born population) are also workers that added to the economy’s productive capacity.”
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