The Canadian economy has grown faster than previously known in recent years, according to revisions from Statistics Canada that partly reframe the narrative around the country’s weak productivity and declining living standards.
Third-quarter gross domestic product numbers, published last Friday, were accompanied by a significant upward revision of the GDP numbers for 2022, 2023 and 2024. In all three years, real GDP growth – that is, actual output adjusted for inflation – was revised up by around half a percentage point.
This suggests that the Canadian economy had more momentum coming out of COVID-19 lockdowns than previously realized, and entered the current period of trade turmoil on a stronger footing.
The revised growth numbers also cast a slightly different light on two issues that have dominated the economic discussion in Canada over the past few years: the country’s dwindling living standards, as measured by real per capita GDP, and weak labour productivity.
GDP per capita has declined since 2022, as the surge in immigration pushed up the population faster than the growth in economic output. Prior to the revision, real per capita GDP stood at around $58,700 in the second quarter, roughly where it was in 2017, and appeared to be on a steadily downward trajectory.
The latest quarterly GDP report, reflecting the revised estimates, puts real per capita GDP at above $60,000. That’s still down from where it was in 2022, but higher than pre-pandemic levels, and trending sideways.
The story is similar for productivity, which is measured as output per hour worked. Previous data showed a notable decline in productivity growth in recent years, which the Bank of Canada had described as a “break the glass” emergency.
These productivity growth numbers have now been revised up 0.7 percentage points in each of the last three years, according to Bank of Montreal chief economist Douglas Porter, suggesting productivity has been treading water rather than sinking.
“If we compare it to 2019, which is maybe the best way to do it, what you’re looking at is still very soft productivity, still quite disappointing, but not horrendous. It’s basically less bad than what we thought,” Mr. Porter said in an interview.
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New numbers released Wednesday showed productivity rebounded in the third quarter owing to a “sharp recovery in business output,” according to Statscan.
Labour productivity at businesses grew 0.9 per cent on a quarterly basis after a 1-per-cent drop in the second quarter, erasing most of the decline that occurred with the outbreak of the trade war with the U.S.
Looking back, the fact that the economy was growing faster than previously thought may help explain some of the trouble the Bank of Canada has had getting inflation fully back to its 2-per-cent target, Mr. Porter said. Core inflation measures remain stuck around 3 per cent.
“I have to wonder if the Bank of Canada had known at the time that the economy was averaging 3-per-cent growth through 2024 [on a quarterly basis], whether they would have been cutting as aggressively,” Mr. Porter said, referring to the series of interest rate cuts that began in the summer of 2024.
“Now, in hindsight it was probably fortuitous that they did cut as aggressively as they did because it gave the economy some momentum heading into all the trade turmoil of this year,” he said.
The Statscan revisions could influence monetary policy decisions going forward, as they suggest the negative “output gap” – the distance between what the economy can produce and what it is producing – is smaller than the Bank of Canada thought. The central bank has already indicated that it’s likely done cutting interest rates for now, and financial markets widely expect the bank to remain on hold at its next decision on Dec. 10.
The GDP revision was the largest in a decade, and followed a similarly large upward revision last year, which covered the preceding three years.
The unusually large revisions reflect pandemic disruptions that have made it harder than usual to get an accurate initial read on growth, according to Amanda Sinclair, assistant director of national economic accounts at Statscan.
These include the pandemic lockdowns, the staggered pace of reopening, supply-chain disruptions and rising inflation, as well as back-to-back years of double-digit annual GDP growth in 2021 and 2022 in nominal terms.
“When you’re having to deal with a lot of these very unusual or extraordinary circumstances, the revisions are slightly larger in the post-pandemic period,” she said. “It can take the system time to fully reflect when there’s a lot of volatility going on.”
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The revisions included upgrades to growth for both household and business expenditures, which offset downgrades to business inventories, showing Canada’s economy “was a little more resilient than we had previously estimated,” Ms. Sinclair said.
This doesn’t change the fact that Canada is currently facing a number of significant economic headwinds. U.S. tariffs have battered key industries and frozen business investment in the country.
Third-quarter GDP data showed the economy bounced back after a contraction in the second quarter, growing at an annualized rate of 2.6 per cent. However, the headline number was heavily influenced by a swing in imports that masked weakness in consumer spending and business investment.
Derek Holt, head of capital market economics at Bank of Nova Scotia, said GDP-per-capita and productivity growth remain weak, even with the revisions. But he is expecting improvement on both metrics going forward, given the slowdown in population growth as a result of immigration caps.
“We’re relatively upbeat on a turning point in all these figures,” he said in an interview. “If you’re going through a one-off population shock, you cannot expect all these new arrivals to be fully integrated into the economy in a country like this overnight. It takes years of adjustment and so I think that’s still in motion.”