ANALYSIS: What Canada’s Latest GDP Growth Shows

While Canada’s gross domestic product (GDP) grew slightly in the second quarter of 2024, several economists say the numbers show an over-reliance on government spending to encourage growth.
“The only way that our economy is growing right now is because we’re adding more people to the economy, and then the fact that we also have a lot of government spending, mainly on employee compensation, or hiring more employees in the public sector,” said Jake Fuss, director of fiscal studies at the Fraser Institute think tank.
The report noted higher government consumption expenditures, business investment in machinery and equipment and engineering structures, as well as household spending for “rental fees for housing, food, and electricity.”
Specifically, government expenditures rose by 1.5 percent due to increases in employee compensation and “hours worked across all levels of government,” the report said, adding that federal and provincial government purchases of goods and services also rose.
At the same time, the second quarter saw declines in exports of goods and services (0.4 percent), residential construction, and household spending on goods including “new trucks, vans, and sport utility vehicles.”
While higher expenditures on housing, food, and electricity led to increased household spending, population growth outpaced this increase, resulting in per capita household expenditures falling by 0.4 percent.
While Fuss acknowledged that per capita GDP is a complicated metric, he said governments have failed to focus on “actual economic growth and on tangible increases in the standard of living,” and have instead increased the size of government.
“But the downside is that it looks like the economy is being kept afloat by certain sectors. That just can’t be sustainable the longer run,” he said, adding that declining GDP per capita is “the more worrisome aspect” of the StatCan report.
Tkacz said that government spending has a substantial impact on economic growth and that higher employee compensation would show up as higher government expenditures that would impact GDP growth in the second quarter.
Lee said it is “curious” that Ottawa has been increasing the size and spending of government and running deficits at a time when the economy is growing.
“What they’re doing now is they’re stimulating the economy,” he said, adding that “deficits are, by definition, stimulative,” as “you’re injecting money into the flow.”
“So you can’t draw a straight line and say, just because you cut immigration, the GDP is going to collapse, or because you cut public service, that the GDP is going to collapse,” he said.
“The economy is dynamic, and decision-makers respond to all of that information out there. And if they think that these are going to produce a stronger economy by making the government more efficient and making immigration sustainable, businesses will go and start investing and spending, and then they’ll start hiring.”