Demystifying the economy | Zero population, zero economic growth?

Every Saturday, one of our journalists answers, in the company of experts, one of your questions on the economy, finances, markets, etc.

Your question is interesting, and the answer is yes, it is possible to see the economy grow without an increase in population. Achieving this, however, depends on a fundamental element: increasing productivity.

First, let’s take a brief look at Japan. Since 2008, the population there has fallen by 1.8% (125.7 million inhabitants in 2021). Accelerated aging has certainly had an effect on the pace of economic growth. We buy fewer pork chops, fewer fridges, fewer cars.

Despite everything, during the same period, the Japanese GDP has climbed by 3.2% over 13 years, once inflation has been subtracted, and the GDP per capita by 5.2%, according to the site Perspective Monde, of the Sherbrooke University. In short, there is economic growth despite the decline in population.

However, this growth is much lower than elsewhere. In the United States, GDP grew by 25.4% during this period, 8 times more than in Japan. And despite US population growth of 9.1% to 332 million, GDP per capita grew by 14.8%.

Aging, low immigration and declining population pose major challenges for an economy like Japan, particularly with regard to the weight of infrastructure, which often has to be maintained despite everything, and the transformation of the economy.

Japan’s challenges, however, stem from much more than population stagnation. For 25 years, this country has experienced various crises that have affected real estate, the financial system and economic growth. The authorities were unable to respond adequately to these crises to clean up the system, instead increasing the public debt.

For example, the Japanese system did not allow the housing bubble to burst in the 1990s, like in the United States and Canada, which left very high debts. And today, regulated utilities continue to absorb some bills for imported energy (coal, natural gas, etc.), artificially protecting consumers from higher prices for some time, according to Mackenzie Investments.

Since 1990, GDP per capita in Japan has grown by 0.55% per year, on average, compared to 0.7% in Canada and 1.1% in the United States.

Which leads me to talk to you about productivity, the level of goods and services produced per hour worked (GDP per hour worked). Increased productivity makes it possible to produce the same goods and services with fewer inputs. The net gain from this productivity is used for something else.

By doing so, even with a relatively stable population, it is possible to increase the value of the economy (GDP), although less rapidly.

This explains the growing importance given by Canadian and Quebec economists to productivity, in the context of the aging of the population and the high costs of this aging.

Productivity growth depends on our ability to innovate, to integrate technologies into our know-how, to be able to replace old ways with new ones, for example.

Unfortunately, productivity is growing slowly in Quebec and in Canada. Over the past 5 years, GDP per hour worked has increased by 1.8% in Canada, which is less than in Japan (3%), the United States (3.1%) or Sweden (6.9% ), For example.

Canada will therefore have to rely on something other than population growth, particularly through immigration, to hope for sustained and profitable growth.

1. For purposes of comparison, I have taken GDP per capita in constant dollars at purchasing power parity.