Economy

Key Messages

  • Canada is in 6th place out of 16 comparator countries, with a “B” grade in the 2012 Economy report card.
  • But Canada’s “B” grade is relative—a reflection of the fiscal and financial uncertainty that hurt much of the European Union.
  • Norway and Australia are the top performers, achieving “A” grades.
  • The U.S. also gets a “B” and ranks two places ahead of Canada, despite its uneven economic recovery and unsettled fiscal performance.

Indicators

How does Canada’s 2012 ranking compare to previous Economy report cards?

Economy

Canada’s ranking has improved—to 6th place in the 2012 version of the Economy report card, up from 11th in 2008, the last time we provided a complete report card on the Economy. We chose not to do a complete Economy report card right after the 2008–09 financial crisis and recession, given the unsettled nature of the economic data during this recovery period.

How is economic performance measured?

The Conference Board’s overarching goal is to measure quality of life for Canada and its peers. We ask two questions: Do Canadians have a high quality of life? Is it sustainable?

When measuring the economic aspect of quality of life, we consider three dimensions:

  1. economic wealth
  2. economic disadvantage and hardship
  3. economic sustainability
  1. Economic wealth is captured by income per capita. Income per capita reflects material living standards, that is, the capacity of Canadians to purchase the goods and services needed to live, such as housing, food, and clothing. It is also indicative of a country’s ability to sustain living standards through public spending on education, health, and infrastructure, as well as through private and public savings that can be used to generate future income and to support future consumption. At the macro level, a country that is not generating enough income is hampered in what it can do in other areas, such as the environment and education.
  2. Economic disadvantage and hardship is measured by the unemployment rate. High unemployment hurts a country’s labour productivity and its gross domestic product (GDP) growth. High unemployment is also linked to elevated rates of poverty, homelessness, income inequality, crime, poor health outcomes, low self-esteem, and social exclusion. More detailed and nuanced indicators of economic disadvantage and hardship are included in the Society pages on this website—such as child poverty, elderly poverty, and income distribution.
  3. Economic sustainability is defined here as a country’s ability to sustain its economic growth and prosperity into the future. Facets of economic sustainability: economic growth, macroeconomic stability, and global integration.
    • Economic growth is represented by three indicators—real (that is, inflation-adjusted) GDP growth, labour productivity growth, and employment growth.
      • GDP growth is essential to sustaining living standards. A country that has a relatively high GDP level today is not guaranteed that this level will be maintained.
      • Productivity growth is the single most important determinant of a country’s long-term GDP growth and per capita income, and it is therefore the only sustainable way to improve a country’s standard of living. Productivity can be enhanced by finding more efficient and effective ways to yield goods and services so that more can be produced with the same amount of effort. Productivity can also be improved by producing higher-value-added products and services that are worth more in the market place.
      • Employment growth is a driver of income per capita. It reflects the capacity of a country to absorb new workers joining the labour force and to use the labour resources available. A buoyant economy is one that is creating new jobs.
    • Macroeconomic stability is represented by a proxy indicator: the inflation rate.
      • The inflation rate reflects sustainability because rising prices erode the purchasing power of consumers; that is, inflation reduces the quantity of goods that can be purchased with a given amount of money. Periods of high inflation or deflation undermine the economy’s ability to sustain prosperity.
    • Global integration: Conference Board research connects economic sustainability with a country’s ability to integrate in the global economy. With the rise of global supply chains and complex integration flows, it is difficult to assess a country’s status on global integration. The Conference Board uses two proxy indicators: the inward and outward foreign direct investment (FDI) performance indexes.
      • Inward FDI encourages the diffusion of technology management know-how, as well as more efficient resource allocation. Subsidiaries acquire knowledge and technologies from their international parent. Domestic firms that interact with these subsidiaries also benefit from these transfers of technology and knowledge. Ultimately, FDI leads to higher productivity, improved quality of products, and increased competitiveness. The Inward FDI Performance Index captures a country’s relative success in attracting global FDI.
      • Outward FDI opens access to foreign markets and promotes deeper integration into global supply chains, making an economy’s firms more efficient and competitive. Outward FDI promotes trade by developing new exporting (and importing) opportunities. The Outward FDI Performance Index captures a country’s relative success in taking advantage of foreign investment opportunities.

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Is Canada still in the gifted class?

Economy link to Methodology

Certainly Canada is still in the gifted class among nations. While the 2008–09 financial crisis and recession hurt Canada and its 15 peer countries, they remain among the wealthiest and most successful countries in the world.

Among its peers, however, Canada’s 6th place ranking means that it sits in the middle of the class. Canada’s overall “B” grade in Economy is good, but “C” grades on two individual indicators—income per capita and outward FDI—and a “D” on inward FDI are not. Canada’s overall “B” in 2012 reflects an “A” on inflation (along with most of the peer group), and “B” grades for GDP growth, labour productivity growth, employment growth, and the unemployment rate.

Which countries are at the top of the class?

Norway is the top-rated country among the comparator group. Norway moved from 3rd spot in the report card for 2007 to 1st position in the 2008 report card, and it remains in 1st position in 2012. Norway continues to lead the class in income per capita—a full $12,000 above that of Canada—and it both weathered the 2008–09 economic recession and shifted into recovery better than most of its peers. It is the only country to receive an “A” grade for income per capita in 2012, and it receives three other “A”s—for GDP growth, employment growth, and the unemployment rate.

Australia is the other peer country to receive an overall “A” grade, placing second overall. Unlike most of the comparator group, Australia never experienced recession in 2008–09. It receives “A” grades in this report card for GDP growth, labour productivity growth, inflation, and the unemployment rate.

How does Canada’s economic performance compare to the 16-country average?

The radar diagram below is a snapshot of Canada’s economic performance (and the 16-country average performance) relative to that of the best-performing peer country—the outer ring—for each of the eight Economy indicators.

The chart has eight axes—one for each indicator—that radiate out from the centre. A score closer to the centre represents worse performance, while a score closer to the outer circle represents better performance.

Canada fares poorly when compared with the top performers; it is well below the best country on all indicators except inflation and employment growth.

Use the pull-down menu to compare Canada’s economic performance with that of any of its peers.

Should Canada continue to look to the U.S. as a role model?

When assessing economic and most other aspects of its performance, Canada naturally looks to the U.S., its closest neighbour and most important trading partner. Canadians know this relationship must be managed carefully. But in the new integrative economy, this is perhaps too narrow a focus for comparison. As well, the 2008 financial crisis originated in the U.S., and the U.S. path to recovery has been slow—further reinforcing the fact that the U.S. is not the perfect role model.

Has Canada’s report card improved since the 1970s?

Canada's Economy by Indicator Ranked by Decade

The 1970s began with Canada in a remarkably positive position. Canadian living standards were high, and the pronounced rise in economic growth and productivity throughout the 1950s and 1960s meant governments had the fiscal room to widen Canada’s social safety net. At the 1967 world’s fair in Montreal, it really seemed as if Sir Wilfred Laurier’s 1904 prediction that “the 20th century belongs to Canada” was coming true.

Alas, his prediction did not come to pass. Canada’s overall economic performance has since deteriorated relative to its peers. The summary report card for each of the decades reveals that Canada’s economic performance slipped from a “B” in the 1970s to a “C” in the 1980s, 1990s, and the 2000s, although Canada has since edged back up to a “B” in the most recent period, 2010–12.

Why did Canada lose ground? Three factors stick out. First, Canada has been a chronic laggard on several important economic indicators—most notably, productivity. Second, Canada has failed to keep pace in the growing competition for global investment, receiving “D” grades for decades. Third, even in some areas where Canada has improved, other countries are still doing better.

The radar diagram below reveals that, relative to the top-performing peer countries, Canada’s economic performance in the 1970s was stronger than 2012 on four indicators. With the notable exceptions of the unemployment rate, inflation, and labour productivity growth, Canada’s 1970s circle was closer to the outer ring, which represents the best-performing country on each indicator.

Use the pull-down menu to compare Canada’s economic performance in 2012 with its performance in the 1970s.

Is Canada keeping up with the rest of the class?

Economy Ranked by Country by Decade

Canada’s relative performance slipped from a “B” in the 1970s and 1980s to a “C” in the 1990s, but then rebounded to a “B” for the 2000s and 2010–12.

Perhaps surprisingly, the G7 countries—against which Canada traditionally compared itself—are not the reason for Canada’s inability to reach the top of the class. The top five “A” grade spots in the report card for the first three years of this decade are taken up by smaller non-G7 countries.