How does the Canadian Economy Grow and a Covid Update

June 25, 2021 | Matt Barasch


We look at population growth in Canada and how we can expect that to impact our economy. Plus we have our weekly Covid charts to keep you up to date.

Chart of the Week

This week we highlight Canada’s population, which saw a nice recovery in the first quarter of 2021. Canada saw a population increase of 82k in the first quarter of 2021, driven by an increase in immigration as international students returned to the country:

In the words of RBC Economics, “2020 was a lost year for Canada in terms of population growth” as the country saw an increase of ~6,000, which is the lowest in recorded history. While we will steer clear of the politics of immigration, we would instead focus purely on the economics:

Economic growth is central to the success of a country. Put simply – if you are not growing, you are dying. Economic growth is a function of two things – the productivity of your workforce and population growth.

Productivity is basically how much each worker can produce during a work segment. So, if a worker (we will call him Bob) produces 10 widgets in a shift, but the business invests in new equipment and Bob also becomes better at his job and the next shift Bob is able to produce 11 widgets, we would say that Bob has become more productive and the output of the business has increased.

But there is a limit to how productive Bob can be. The business cannot constantly invest in new equipment and even if it could, Bob will reach the limit of how efficient he can be in a shift. The business could lengthen Bob’s shift, but again, there are limits to how far Bob can be pushed before his productivity no longer increases.

But the business has another choice, instead of squeezing Bob until he is no longer more productive, it could add another worker to work the shift. Even if this new worker (we will call him Tom) only produces five widgets in a shift, the combined efforts of Bob and Tom will cause an increase in the business’s output and the business will grow.

Here is how Canada looks over the period of 2000 to 2019:

As you can see, productivity contributed about 1/3rd of growth over the first two decades of the millennium, while population growth contributed 2/3rds. It is worth noting that the 0.8% average from 2000 to 2019 was about half the level of the 70s to the 90s, so Canada can do a better job of increasing productivity than it has (the government needs to foster a better environment for new investment).

But until this happens, growth will stagnate without population growth doing much of the heavy lifting and unless Canadians are going to start being fruitful and multiplying at a much faster rate than they have been, immigration will need to be a major contributor to population growth.

COVID-19 Update

The news is a mixed bag. The global daily new case count is now below 400k, but the decline in cases has now begun to stagnate at a level similar to what we saw in early February:

The so called “delta variant” has become the biggest problem for driving down the COVID numbers, with the situation in the U.K., where the delta variant has now become the dominant strain, once again deteriorating:

On the plus side, Canada, the U.S. and the E.U. have continued to see their case counts decline with Canada now at the levels of the summer of 2020:

Even Israel, which is near full vaccination, has seen a slight uptick in new cases; however, we would note that the fatality rate remains near zero, which is indicative of the vaccines’ effectiveness in significantly reducing the risk of severe cases of the virus.