Canada’s economy is close to contraction, with public sector growth the last pillar holding it up. Statistics Canada (Stat Can) data shows real gross domestic product (GDP) was unchanged in August. A Big Six bank warns that despite maintaining robust population growth, only non-business growth remains positive. The combination of factors continues to erode at per capita GDP, now in decline at a pace never seen outside of serious recession in Canada.
Canadian GDP Showed Zero Growth, Per Capita Decline The Sharpest Outside of Recession
Canadian real GDP made no progress in the latest report. Seasonally adjusted it was unchanged in August, following just 0.1% growth a month prior. Goods producing industries (-0.4%) were hit the worst, while services (+0.1%) managed to inch out minimal growth.
National Bank of Canada Financial (NBF) wrote to investors suggesting the data is worse than it looks. Adjusting for population emphasizes this isn’t a zero growth environment, but a record addition of new people consuming goods and services were needed to get up to zero.
“Consequently, GDP per capita has fallen by around 4.0% cumulatively since 2022, which is unprecedented outside a recession,” explains Matthieu Arseneau, deputy chief economist at NBF.
Canadian Real GDP Only Showing Non-Business Growth, Driven By Public Administration
Eroding productivity and quality of life is just part of the bad news. The bank also points out that private business growth is contracting, a problem that was suggested with yesterday’s data on stagnant business growth in 2024. The economy’s growth is now confined to public sector spending, and not where many would hope.
The public sector (+0.2%) was the second largest growth sector in last month’s real GDP, the 8th consecutive month it continued to grow. Teachers and doctors weren’t behind the move, but growth was primarily driven by expansion of public administration. It’s been a persistent trend recently, especially at the municipal level.
Only the finance sector (+0.5%) outpaced public sector growth. Though Stat Can noted it was “higher than usual,” with an “atypical” role played by the bond market. Government bonds of course being the largest segment and used to pay for spending not covered by revenue, implying public sector expansion is behind this growth too.
A declining business environment and soaring public sector growth is expected only in recession, not unlike declining per-capita real GDP. If the economy is entirely dependent on the public sector expansion just to get to zero growth, the economic outlook isn’t great.
“…a number of indicators do not bode well for a stabilization of the labour market in the coming months. Hiring intentions remain below historical norms and the sharp decline in private sector vacancy rates does not point to a recovery in the labour market,” explains Arseneau.
Adding, “In our view, further substantial interest rate cuts will be needed before GDP per capita and the unemployment rate stabilize.”
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