Analysis of Canada’s Recent GDP Growth Performance
Canada experienced a slight growth in its gross domestic product (GDP) during the second quarter of 2024. However, some economists suggest that this growth is primarily driven by government spending, indicating a potential over-reliance on such measures for economic expansion.
“Our current economic growth is largely attributed to an increase in the population and significant government spending, particularly in employee compensation and public sector employment,” remarked Jake Fuss, the director of fiscal studies at the Fraser Institute think tank.
In the second quarter, the country’s GDP rose by 0.5%, following a 0.4% increase in the first quarter of 2024, as reported by Statistics Canada on August 30 in an economic report. Per capita GDP declined by 0.1%, marking the fifth consecutive quarterly decrease, while the population grew by 0.6% to over 41 million people.
The report highlighted elevated government expenditures, increased business investments, and rising household spending on essentials like housing, food, and electricity. Notably, government spending surged by 1.5%, driven by higher employee compensation and working hours across all government levels.
However, the second quarter witnessed declines in exports, residential construction, and household purchases of goods like new vehicles.
Despite the increase in household spending on essentials, the growth in population outpaced this, resulting in a decline of 0.4% in per capita household expenditures.
Fuss emphasized that the dip in per capita GDP reflects a decrease in individuals’ living standards, even amid overall economic growth. From mid-2019 to the end of 2023, GDP per person decreased by 3%, while the population grew by over three million.
While acknowledging the complexity of per capita GDP, Fuss criticized the government’s lack of focus on tangible increases in living standards, instead opting to amplify the size of government.
In a study released by the Fraser Institute in March, Fuss indicated that government size in Canada reached 40.5% of the economy in 2022, with public-sector employment representing 21.2% of total employment, showing an increase over the years.
Discussing the impact of immigration and government spending, economists like Greg Tkacz and Ian Lee expressed concerns about the sustainability of the current growth trajectory and the implications of increased government intervention.
Immigration and Government Spending
Tkacz emphasized the importance of carefully managing government spending to foster sustainable economic growth, highlighting the potential risks associated with continuous deficits and reliance on certain sectors.
Addressing the significant role of government spending and immigration on the economy, Lee mentioned the disproportionate impact of these factors on Canada’s economic data. He raised questions about the sustainability of increased government size and spending amidst ongoing economic growth.
Reflecting on past policy decisions, Lee noted the positive outcomes of reducing government size and carefully controlling spending to stimulate economic growth, emphasizing the dynamic nature of the economy and the need for informed decision-making.
“It’s essential to consider all factors influencing the economy and make strategic choices to enhance efficiency, sustainability, and overall economic prosperity,” Lee concluded.
