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Canada may not technically be in a recession, but some economists argue the country\u2019s declining per-capita output mimics trends of prior downturns, so there\u2019s a need for policymakers to look beyond the overall positive economic numbers the country has posted in recent quarters.<\/p>\n
Bank of Canada governor Tiff Macklem touched upon this on Wednesday when he announced a second consecutive cut in interest rates and said the central bank will \u201chave to look at both\u201d the total economic growth and the output per person to analyze the state of the economy while making interest rate decisions.<\/p>\n<\/div>\n
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\u201cHouseholds have actually been cutting back on spending,\u201d he said during the press conference. \u201cBut with high rates of immigration, there are more households, so that\u2019s boosting the GDP (gross domestic product).\u201d<\/p>\n
From a business perspective, Macklem said it doesn\u2019t matter whether the demand comes from individual households consuming more or whether there are more households.<\/p>\n
The overall size of the economy has continued to grow and has narrowly avoided consecutive quarterly declines \u2014 the technical definition of a recession \u2014 in recent years despite high interest rates. But economists attribute that to a new wave of consumers due to Canada\u2019s record increase of more than two million newcomers in the past two years.<\/p>\n
Consumer spending accounts for more than half of the GDP and many newcomers are also workers who add to the economy\u2019s productive capacity, economists from the Royal Bank of Canada said last week in a report.<\/p>\n
GDP measures the total output created through the production of goods and services in a country during a certain period. It also measures the income earned from that production. GDP per capita is calculated by dividing the country\u2019s total GDP by its total population.<\/p>\n<\/div>\n
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Canada\u2019s GDP per capita has declined in six of the past seven quarters.<\/p>\n
The kind of situation where GDP is on the rise, but per-capita GDP is on the decline isn\u2019t sustainable, said Benjamin Tal, an economist at the Canadian Imperial Bank of Commerce, since it means the economy is growing mainly due to population growth as opposed to being productive. Canada\u2019s productivity numbers have also been declining in recent quarters.<\/p>\n
\u201cI think population growth is entering (policymakers\u2019) psyche,\u201d he said.<\/p>\n
BMO Capital Markets economist Robert Kavcic said the per-capita numbers show a \u201clittle bit more truth,\u201d such as the scaling back of spending, than the overall numbers show.<\/p>\n
\u201cThat would be arguing in favour of the Bank of Canada cutting rates,\u201d he said. \u201cMaybe there\u2019s some more weakness below the surface.\u201d<\/p>\n Recommended from Editorial<\/p>\n