Is Canada’s per capita GDP really 7 per cent below long-term trend?

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Claude Lavoie is a contributing columnist for The Globe and Mail. He was director-general of economic studies and policy analysis at the Department of Finance from 2008 to 2023.

Statistics Canada is excellent at producing reliable and useful data and has a long-standing reputation of being one of the best statistical agencies in the world. However, sometimes it puts out simplistic factoids that can be misleading.

Many analysts and political activists have used a recent Statscan report, which suggests GDP per capita is 7 per cent below its long-term trend, to attack the government’s economic policies.

The report implicitly assumes that real GDP per capita should constantly grow, on average, at the same 1.1-per-cent annual rate as it did between 1981 and 2023. The report says that, under this projection, current GDP per capita needs to grow at a sky-high 1.7 per cent a year to return to trend within a decade.

But there is something wrong with the premise of that argument. Why would future GDP grow at the same rate as between 1981 and 2023? Why not at the same rate as over the 1961 to 2023 period, for which Statscan has kept GDP records. Why should we expect real GDP per capita to continually grow at a constant rate?

Demographic factors, such as population aging, would certainly affect this rate as older people tend to participate less in the labour force. Similarly, globalization and the mass adoption of information and communication technologies boosted per capita growth from the second half of the 1990s to the first half of the 2010s. As the economic effects of these impacts ended and aging accelerated, per capita growth declined in many countries.

Christine Lagarde, former head of the International Monetary Fund and current head of the European Central Bank, has characterized the post-2008 period as the “new mediocre.” Why should we expect Canada’s per capita GDP to be an anomaly and continue to grow at the same rate as in the past when it slowed in most other advanced economies? If Statistics Canada had based their “trend” on the post-2008 period, they would have likely reported a significantly smaller gap.

Moreover, volatile quarterly data mean that using current per capita GDP to determine what is needed to “return to trend” is deceptive.

Real GDP and population have temporary fluctuations. Periods of unusually weak growth are often followed by periods of unusually high growth. Rising interest rates and large influxes of refugees from continuing wars will temporarily dampen growth in per capita GDP.

If Statistics Canada had published the same report last year and used the post-2008 period to determine the “trend growth,” they may have concluded that real GDP per capita was above its trend. Would people have then applauded the current government’s economic policies? Or argue we should slow growth?

We all should avoid making bold claims unbacked by strong evidence and thoughtful analysis.

It is concerning that Statistics Canada, a federal government agency, published a rather simplistic analysis on a politically sensitive issue. Amid a political debate centred on per capita GDP growth, it was clear its report, which doesn’t provide any new useful insights, would be used for political propaganda. Typically, public servants want to avoid being on the front page, so it seems like someone in the upper echelons of Statistics Canada didn’t think things through.

Statistics Canada’s report is right to point out that our productivity performance has been lagging that of other countries. But this is not a recent phenomenon; it has been going on for decades. So it’s misguided to put the blame on the current government.

Anecdotes and simplistic analyses are unduly influencing political debates and policy decisions across the political spectrum. Whatever Statscan’s intentions, it should not have added to this cloud of malaise.