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Canada’s expected to fall into recession later this year, but it may already be there by a traditional definition. Real gross domestic product (GDP) per capita data shows the country is in a per capita recession, one of the traditional definitions. These events are associated with an eroding standard of living, and it’s expected to get worse. Not just in the near term, but it’s turning into a long-term issue.

What The Heck Is A Real GDP Per Capita Recession? 

A real per capita recession is when real GDP per capita contracts for two consecutive quarters. If that sounded like gibberish, let’s break it down. Real GDP is a country’s economic output adjusted to remove the impact of inflation. Adjusting it per capita averages it per person, removing the impact of population change.

The biggest problem with aggregate GDP is it’s easily skewed by population change. Countries with poor economic performance may obfuscate the issues with aggressive population growth. Things are getting worse, but there’s more tax units, er… human capital stock, I mean… people generating output.

Still not clear? Think of it like a portfolio filled with poorly performing stocks. Let’s say a friend started a portfolio with $100k, and the value of stocks fell by 50%, leaving them with a $50k portfolio. They deposit another $100k, bringing the value to $150k. Talking about aggregate GDP growth is like them saying their portfolio grew 50% since they first started. Is it true? Sure, and it sounds like they’re doing great. But the reality is you didn’t learn about their performance, just the total.

GDP Per Capita Is Better At Assessing GDP Standard of Living

The question most people should ask when looking at GDP is what are they trying to get out of it. Aggregate GDP is great if you’re a politician looking to have a d*ck measuring contest with other countries. If you’re seeing an eroding quality of life in your city while being told it’s the best economy ever, you probably want to peep real GDP per capita.

“GDP per capita is often used for assessing the standard of living and for making cross-country comparisons in the economic standing of a country.”

Weimin Wang, Statistics Canada

Recession is a tricky word to define, especially in the 2020s when it’s political like “inflation.” The Reserve Bank of Australia (RBA) has even stressed there’s “no single definition of recession.” However, all definitions are looking for one thing—a period of eroding economic welfare.

Real GDP per capita is one of the better ways to observe this kind of change. Rising real GDP per capita is associated with quality of life improvements and opportunity. Conversely, a falling measure is associated with stagnating or declining real wage growth, and fewer opportunities. A popular classic definition of a recession is real GDP per capita declining for two consecutive quarters.

“We use GDP per capita partly as it is more related to welfare than is aggregate GDP.”

Robert Ewing and John Hawkins, Business Cycles in Australia (2006) 

Canada Entered A Per Capita Recession At The End of Last Year

Canada’s smack dab in the middle of a GDP per capita recession. The most recent quarterly data shows a 0.9% contraction in Q4 2022, following a 0.2% drop in the previous quarter. In other words, the country is already in recession by this measure. That might explain a lot for some people.

Canadian GDP Per Capita Growth

Quarterly real GDP growth rate adjusted for population size.

Quarter Percent
Q1 2021 1.2
Q2 2021 -0.8
Q3 2021 1.2
Q4 2021 1.1
Q1 2022 0.4
Q2 2022 0.5
Q3 2022 -0.2
Q4 2022 -0.9

Source: Stat Can; Better Dwelling.

Canada’s Economy Is Expected To Do Poorly For A Looong Time

Canada hasn’t reported Q1 2023 GDP data yet, but it’s not looking good at this point. Stat Can’s preliminary estimate for March is a 0.1% contraction, a little high by some forecasts. It follows lower than expected growth in February, which adds up to a 0.1% drop in real GDP per capita. That would be the third consecutive quarter in the per capita recession, and that’s ahead of aggregate GDP expected to begin contracting later this year.

Is it a recession? Canadians are likely seeing an erosion in quality of life, and while incomes are rising they aren’t rising enough to compete with inflation. At the same time, shelter costs are spiraling out of control, and the economy is preparing to double down on housing investment, despite already being too overly dependent.

Ultimately, it doesn’t matter if your favorite experts or politicians are comfortable with the definition. Canadians on average are heading towards an erosion in quality of life, and fewer opportunities. The trend isn’t expected to end any time soon either.

The OECD forecast shows Canada will have the worst GDP per capita growth of any advanced economy for a 40-year period. Nearly two generations of performance similar to Greece during the Great Recession isn’t exactly the picture people have when they immigrate to Canada, is it?

But hey, that aggregate GDP, right?


Story by: Better Dwelling