The Great White North: Great No Longer?
By Sebastian Reichelt
Recently, the once remarkable Canadian economy has shown signs of strain, facing several interrelated challenges impacting growth, stability, and prosperity. After the global shock of COVID-19, Canada struggled similarly to the rest of the Western world but after the pandemic, the Canadian economy showed strong growth of 5.29% in 2021 and 3.82% in 2022. However, in 2023, the economy only grew by 1.1%.
Canada’s economy has long been heavily reliant on its natural resources, particularly oil, gas, and minerals. According to Investopedia “real estate, mining, and manufacturing” are the biggest industries in Canada. The mining sector has been helpful for the country’s GDP through export revenues, however, it also makes the economy vulnerable to fluctuations in global commodity prices. The volatility of oil prices, in particular, has created uncertainty for provinces like Alberta, where the energy sector plays a central role in the local economy. Moreover, as the global push toward renewable energy and sustainability intensifies,
Canada faces the challenge as the world transitions away from fossil fuels. The transition could risk displacing jobs and economic activity in regions dependent on resource extraction.
With 81.6% of Canadians living in cities, and cities generally becoming unaffordable across the world, housing affordability is one of the most significant economic challenges in Canada. In cities like Toronto and Vancouver, home prices have soared to levels that are unattainable for many middle-income families. According to CTV News, “In Toronto, the percentage of people spending more than 30 percent of their income on rent is 40 percent, according to the index, while 18 percent of people are spending over 50 percent of their income on rent. In some of Toronto's suburbs, those numbers are much higher, according to the index.” While this problem is seen across the West, the reason why it’s particularly bad in Canada has a large part to do with the incredibly high immigration Canada is facing, as 500,000 immigrants came in 2023, a lot for a country of 40 million. The strain on Canada’s housing market is especially prevalent with lower-income families, where immigrants are more likely to reside.
Canada’s largest problem, however, is the fact that it is lagging behind in productivity growth and innovation compared to the United States. While the country has a highly educated workforce and world-class research institutions, the commercialization of innovation and investment in research and development (R&D) remains relatively low. According to the Information Technology Innovation Foundation, “In 2021, U.S. firms spent almost 103 times more than Canadian firms on R&D—$529 billion compared with Canadian firms’ $5.2 billion—despite U.S. GDP being just 11.7 times greater than Canada’s.” This lack of innovation capacity affects Canada’s ability to compete globally in emerging industries such as technology, artificial intelligence, and biotechnology. The most valuable Canadian company, Shopify, is only ranked 164 globally, while America has thirteen out of the top fifteen most valuable companies. Without valuable companies, Canada cannot compete with the likes of America and the innovation that these American companies can create. Without significant investment in innovation and productivity improvements, Canada risks falling behind in the global economy, limiting its potential for future growth.
Canada’s economy is at a crossroads. While the country has many strengths, including a stable political system, a diverse workforce, and abundant natural resources, its economic challenges are significant and multifaceted. Canada may be left behind for years to come without proper investment in the right industries to create global competition to move away from more unstable industries.