Canadian growth far outpaces U.S: StatsCan

It’s not easy living in your older sibling’s shadow for so many years, so it’s welcoming for Canada to find out that its economy is growing far faster than that of the United States.

A new Statistics Canada report released on Thursday reveals that between 2000 and 2006, Canada’s real income per capita grew 15.5%, while the U.S.’s increased by only 9.1%.

“I find this very interesting,” says Douglas Porter, deputy chief economist for the Bank of Montreal. “For years we’ve been telling people to focus on real GDP growth, but real GDP isn’t the be-all and end-all; income growth [which the StatsCan report takes into account] matters too.”

Porter says if the study accounted for only real GDP growth, we wouldn’t notice any difference between the Canadian and U.S. economies. If anything, the Great White North might be worse off than its southern neighbour. But “by these measures, Canada’s been doing very well this decade,” he says.

The study reveals that Canada’s rapid growth is due to a soaring commodity sector. “After 2003, export prices rose sharply, the Canadian dollar appreciated, and prices of imported goods fell,” the report explains.

Porter agrees with StatsCan’s findings. “You can point the growth to one major factor,” he says. “Booming commodity prices.”

But what explains the large disparity between Canada and the U.S? China, say both Porter and StatsCan.

In 2001 China became a member of the World Trade Organization and began scooping up Canadian-made goods. Since Canada is a large commodities exporter, while the U.S. is a commodities importer, this country saw a huge increase in income growth relative to GDP growth.

“The growth really launched into orbit around that time, as China became a significant commodity consumer,” says Porter, who adds that even if Canada sold its wares to only the U.S. or Europe, it would still be strong because “China’s boosting prices for everyone.”

Canada’s strong performance is impressive, but it’s even more so considering how dismal the country’s fortunes looked before the turn of the century.

Statistics Canada says that prior to 2000, the Great White North’s economy was on a downward spiral. “Prior to 2000, all measures indicated a long-term decline in the Canadian economy relative to the U.S. economy … The U.S. economy tended to grow faster than the Canadian economy, regardless of whether labour productivity, real GDP per capita or real income was examined. In fact, if real income is used as the yardstick for measuring performance, the Canadian economy fares worse than if either labour productivity or real GDP per capita is used.”

Luckily, the days of a low dollar and weak commodity prices look to be in the past. Porter thinks that we’ve seen a fundamental change, due to the developing world’s insatiable need to consume. That will keep commodity prices high for some time.

Still, don’t expect Canada’s economy to keep growing quite as rapidly as it is now. “I think it’s possible that the level of improvement will be sustained,” says Porter, “but I’m not sure if we can continue to grow that much more quickly than the U.S. in the next five years.”

Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com