Good news: Canada’s economy grew slightly in May. Bad news: it’s barely keeping its head above water and not growing at the same pace as the population.
How does population growth play a role in the Canadian economy?
The country’s population growth has the effect of reducing GDP per capita, which has fallen six times in the last seven quarters: “a decline never seen outside of a recession,” underlines Marc Desormeaux, principal economist at Desjardins, in a note to investors.
In May, the country’s GDP grew by 0.2%, according to Statistics Canada data released Wednesday. The increase was 0.3% in April. “Although Canadian GDP growth [en mai] “While the performance was slightly better than expected, it was not a medal-worthy performance,” said CIBC economist Avery Shenfeld in an analysis published Wednesday.
During the 12 months of 2022, Canada’s population grew by more than a million people, a record at the time. Then, between June 2023 and April 2024, another million people were added – this time, in 10 months.
International migration also explains more than 99% of the growth in the Canadian population observed from January to March 2024, according to Statistics Canada.
Can this lower interest rates?
According to Desjardins analysts, the decline in GDP per capita could prompt the Bank of Canada to reduce the key rate. “The economic weakness per capita adds to the list of arguments in favour of additional monetary policy easing,” summarizes economist Marc Desormeaux. Like many economists, he predicts that the Bank of Canada will revise its key rate downward by a quarter point in September.
GDP per capita will decline further in the second quarter of 2024, which ends in June, according to Desjardins’ analysis. The results for that quarter will be released next month by Statistics Canada.
Which sectors prevented GDP from growing further?
Retail trade was the sector that most dampened economic growth in May, posting a decline of 0.9%. This particularly concerns food retailers (-2.3%).
“Businesses remain very concerned about sales uncertainty, while labour shortages are no longer a problem,” noted economists at National Bank Financial in their analysis of the results. The fragility of the job market and interest rates are limiting consumers’ purchasing power. The only exception? The automobile sector, whether new or used cars.
Oil sands exports also posted their largest decline since January 2024 (-3.5%), due to maintenance work carried out at certain Alberta facilities, Statistics Canada said.
What explains the slight increase in this case?
A few specific events contributed to this more or less unexpected growth in GDP. Statistics Canada notes the presence of the Edmonton, Vancouver and Winnipeg teams in the NHL playoffs, which among other things boosted accommodation and restaurants (+0.9%), but also the entry into service of the expanded Trans Mountain pipeline, which boosted pipeline transportation (+0.6%).
“The May data also benefited from a significant boost from public sector output, which [représenté] “about half of the overall growth for the month,” says Avery Shenfeld. This increase is partly attributable to public sector strikes in Quebec in 2023. Since then, the education sector has been showing an increase, according to Statistics Canada.
Manufacturing industries – such as manufacturing, agriculture, utilities and construction – offset the slowdown caused by retail trade. They were the largest contributors to economic growth in May (+1.0%).
What is planned for the coming months?
Statistics Canada is forecasting a 0.1% increase in June, according to its preliminary estimate. “The Canadian economy remains on a tightrope: struggling to stay on its feet but not in serious trouble, which is consistent with continued measured interest rate cuts,” said Douglas Porter, chief economist at BMO Financial Group, in a note to investors.