Economic Prosperity
How Canada Performs
In order to assess Canada’s long-term economic growth prospects, it is crucial to understand its strengths and weaknesses.
In this dimension of the How Canada Performs economy report card, we look at the factors that affect a region’s prosperity: economic growth, government debt, income, inflation, investment, labour productivity, employment growth, and unemployment.
Key findings
- Canada earns a D grade in real income per capita among the 16 peer countries in our ranking.
- Canada’s real income per capita dropped in 2023, meaning that the economy is now growing slower than the population.
- Income per capita reflects the capacity of citizens to purchase goods and services that support a high quality of life. Canda’s living standards fell behind most of its peers over the last three decades, from sixth place in 1988 to 13th in 2023.
- Most provinces receive a D grade in real income per capita.
Canada’s performance is near the bottom of the pack
In 2023, Canada’s inflation-adjusted income per capita stood at US$45,564, placing it lower than 12 of its peer countries and earning it a D grade.1 The U.S., meanwhile, receives a C, with income per capita of US$64,999. Income per capita in 11 peer countries fell in 2023, including Canada.
Ireland clinches the only A and is a relative newcomer at the top of the charts. It was a D performer into the 1990s, but since the turn of the millennium, it’s rapidly risen in the ranks. Ireland has benefited from factors like its favourable tax treatment of foreign companies in the country and liberalizing of its labour legislation and other policies that make it easier for businesses in Ireland to hire people.2
These factors pushed Ireland’s performance out of reach of any other peer country in most measures in the economic prosperity dimension. At US$101,522 in 2023, Ireland’s income per capita is US$31,780 higher than Switzerland’s (in second place in this indicator) and US$5,958 higher than Canada’s.
Removing Ireland from the ranking in this indicator would improve the grades of most countries. Switzerland, the U.S., and Norway would earn A grades, and six countries would move from a D to a C. But Canada, Finland, France, Germany, Japan, and the U.K. would retain their D grades.
Why income per capita matters
Canada’s decades-long decline in the ranking continues
In the 1970s and 1980s, Canada ranked seventh among the 16 countries and earned C grades. In the 1990s, it dropped to 10th, and it fell further to 12th in the 2010s and to 13th in 2020–23.
Canada’s income gap with its peers is growing
Canada has fallen behind most peer countries in real income per capita. The gap between the U.S. and Canada is now 41 per cent higher than five years ago and almost double what it was a decade ago. In the 1970s and 1980s, Canada’s income per capita was either above or on par with the peer-country average; in 2023, it fell below that average by US$10,017.
Most Canadian provinces earn D grades in income per capita
Apart from Alberta and Saskatchewan, which receive C grades in income per capita in 2023, all provinces earn a D or D– . Quebec, Manitoba, New Brunswick, Prince Edward Island, and Nova Scotia rank below all other peer countries, which is why they earn a D–. Nova Scotia is the province with the lowest income per capita, recording a value of US$33,837—nearly US$27,000 less than that of Alberta, the highest-ranking province.3
Even if Ireland were removed from the analysis, most provinces would retain their D grades. But Alberta and Saskatchewan would move up to a B grade.
- Grades are awarded based on a methodology where the best-performing country is guaranteed an A and the worst-performing country is guaranteed a D. When the provinces are added to the peer country comparator group, provinces that perform better than the best-performing peer country are awarded an A+ and provinces that perform worse than the worst-performing peer country are awarded a D–.
- U.S. Department of State, “2022 Investment Climate Statements: Ireland,” U.S. Department of State, 2022.
- Statistics Canada provincial data for 2023 are not yet available. In this analysis, data for Ontario and Quebec were available from the provinces themselves. The remaining provincial data are from Signal49 Research’s provincial outlook.
Key findings
- Canada earns a D grade in economic growth and ranks sixth among the 16 peer countries in our ranking, with a real compound annual economic growth of 1.4 per cent over 2019 to 2023.1
- Newfoundland and Labrador ranks last among both provincial counterparts and peer countries with growth of –1.6 per cent.
- Strong economic growth is essential for the sustainability of government finances over the coming decades.
Canada ranks above most peers in economic growth
Among the 16 peer countries in our ranking, Canada stands 10th, earning a D.2 Economic growth is measured by GDP, which represents the increase in the inflation-adjusted value of the goods and services produced by an economy.
All peer countries experienced growth in the five-year period, indicating their levels of GDP are above pre-pandemic levels.
Why economic growth matters
It reflects an increase in living standards
Economic growth tracks changes in the size of the entire economy. It’s calculated as the change in GDP. GDP measures the monetary value of goods and services produced in a specific period and is often used as an indicator of the increase in a country’s standard of living or prosperity. An economy growing fast enough to keep pace with both inflation and population growth will see living standards improve.
It allows governments to do more
Economic growth raises incomes, corporate profits, and government revenues, even with tax rates held constant. As costs for public services like healthcare and pensions rise, the need for financial capacity to address other government priorities, such as reducing emissions and defence spending, also grows. Healthy economic growth is key to ensuring the sustainability of government finances over the coming decades.
It provides insights for investors
Investors use economic growth indicators to identify rapidly expanding markets or those with consistent growth for potential expansion.
It provides insights for policy-makers
Policy-makers use this indicator to assess the impact of policies and identify the factors driving economic activity.
Canada’s economic growth grades vary over time
Canada’s grade in economic growth has fluctuated, from a B in the 1980s to a D in the 1990s due to recession and fiscal challenges. By the mid-1990s, Canada had addressed its fiscal challenges, creating a more positive investment environment.
These changes improved Canada’s grade to a C in the 2000s. Despite the 2008–09 financial crisis and recession, the decade was positive for the country, aided by strong commodity demand and prices. Canada’s grade didn’t rise above a C in the 2000s and 2010s solely because of Ireland’s stunning growth. Removing Ireland from the comparator group would push Canada’s grade to an A in the 2000s and a B in the 2010s.
Newfoundland and Labrador is the worst performer
Newfoundland and Labrador experienced growth of −1.6 per cent, the lowest among all provinces and peer countries, earning a D−.3 No province earns an A, two provinces earn Cs, and six provinces earn Ds.
- All growth figures, unless otherwise noted, have been calculated as the compound annual growth rate over the period 2019 to 2023.
- Grades are awarded based on a methodology where the best-performing country is guaranteed an A and the worst-performing country is guaranteed a D. When the provinces are added to the peer country comparator group, provinces that perform better than the best-performing peer country are awarded an A+ and provinces that perform worse than the worst-performing peer country are awarded a D–.
- Statistics Canada provincial data for 2023 are not yet available. In this analysis, data for Ontario and Quebec were available from the provinces themselves. The remaining provincial data are from Signal49 Research’s provincial outlook.
Key findings
- Canada earns a D grade in labour productivity growth and ranks 13th among the 16 peer countries in our ranking.
- Productivity is a key driver of long-term prosperity.
- Canada has consistently underperformed in productivity growth.
- Saskatchewan is the best-performing province, with a C grade, while New Brunswick and Newfoundland and Labrador trail, with D− grades.
Canada ranks last among peers in labour productivity growth
Canada sits among the bottom of the peer group in 13th place, earning a D grade for labour productivity growth.1 Ireland is the clear winner, with labour productivity growth of 4.3 per cent.2 Belgium is in second spot, with much lower growth of 2.2 per cent.
If Ireland were removed from the mix, Belgium, the U.S., and Switzerland would achieve A grades, Canada would earn a C, and only three countries—Australia, Finland, and France—would retain their D grades.
Why productivity growth matters
It’s a key driver of long-term prosperity
Productivity, defined as GDP per hour worked, is one of the most important determinants of a country’s per capita income over the longer term.3 Countries that are innovative and able to adapt to the ebb and flow of the new global economy boast high productivity and thus a higher standard of living. Productivity growth means an economy can produce and consume more goods and services for the same amount of work.
It’s essential to social well-being
Productivity is also essential to social well-being. The more efficient an economy is, the more that country can sustain living standards through public spending on education, health, and infrastructure, as well as through savings to finance investment.
Canada has underperformed in productivity growth for decades
Canada’s labour productivity growth has lagged top-performing countries for at least the past two decades, impacting its global competitiveness.
Canada’s productivity gap with leading peers persists
While productivity growth rates are informative, they don’t tell the whole story. The actual level of productivity—that is, the dollar value of output per hour worked—is equally significant. For example, although Japan ranks fifth in labour productivity growth in 2023, it ranks last in its level of productivity. Conversely, Norway’s productivity level ranks second, but its lacklustre productivity growth puts it in 12th spot in that metric.
Low productivity levels indicate a challenge for a country’s future economic prosperity and social well-being. In 2023, Canada’s labour productivity of US$52.80 per hour worked was only 68 per cent of the U.S. level (US$78.00) and 43 per cent of Ireland’s level (US$123.00).
Alberta is the top province in productivity growth
Saskatchewan and British Columbia are the only provinces with a grade above a D. Six provinces experienced negative productivity growth over 2019−23.
- Grades are awarded based on a methodology where the best-performing country is guaranteed an A and the worst-performing country is guaranteed a D. When the provinces are added to the peer country comparator group, provinces that perform better than the best-performing peer country are awarded an A+ and provinces that perform worse than the worst-performing peer country are awarded a D–.
- All growth figures, unless otherwise noted, have been calculated as the compound annual growth rate over the period of 2019 to 2023.
- U.S. Bureau of Labor Statistics, “Productivity 101: Why Is Productivity Important?,” U.S. Bureau of Labor Statistics, n.d., accessed January 16, 2023.
Key findings
- Canada earns a C grade due to its relatively high unemployment rate in 2023.
- High unemployment means that the economy is not operating at full potential.
- Canada’s comparative ranking among its peers has remained stable over time.
- No province achieves an A grade; three provinces receive a B.
Canada’s unemployment rate is higher than most peers’
In 2020, responses to the COVID-19 pandemic pushed Canada’s unemployment rate to 9.7 per cent, a significant rise from 5.7 per cent in 2019. By 2023, the rate had improved to 5.4 per cent, but still exceeded the rates of most peer countries, resulting in a C grade.1
Six peer countries attain A grades and eight, including Canada, reported lower unemployment rates in 2023 compared with their pre-pandemic levels.
Why unemployment matters
It hurts the economy
High unemployment means that the economy is not operating at full potential. The result is lower incomes, corporate profitability, and government revenues than would be ideal.
It affects social factors that underpin economic prosperity
Unemployment, especially when recurring or when occurring for extended periods, has negative consequences for individuals, their families, and the communities in which they live. It’s linked to higher rates of poverty, homelessness, income inequality, crime, and poorer health outcomes. It can also contribute to lower self-esteem and social exclusion.2
Very low unemployment can signal deeper issues
A very low unemployment rate isn’t necessarily good—it may indicate underlying labour market issues, such as the labour shortages currently affecting our A-performing countries.3 In fact, most peer countries, including Canada, are experiencing labour shortages due to the rebound in economic activity since the pandemic-induced slump and the shift in labour between industries. Industries like hospitality that were hurt by the pandemic have struggled to replace workers who moved to other industries during lockdown periods.
Canada’s unemployment rate has improved
Despite the pandemic-induced spike in 2020, Canada’s unemployment rate is significantly lower than historical peaks—12 per cent in 1983 and 11.4 per cent in 1993. It fell steadily to 5.7 per cent in 2019. Despite these gains, Canada has not substantially improved its relative position, as most of its peers have similarly reduced their unemployment rates over the same period.
All provinces earn Cs or Ds in unemployment
In 2023, Quebec led the provinces with an unemployment rate of 4.5 per cent, earning a B grade. Manitoba and Saskatchewan also earn Bs. Newfoundland and Labrador has the highest unemployment rate among the provinces and peer countries, earning a D–.
- Grades are awarded based on a methodology where the best-performing country is guaranteed an A and the worst-performing country is guaranteed a D. When the provinces are added to the peer country comparator group, provinces that perform better than the best-performing peer country are awarded an A+ and provinces that perform worse than the worst-performing peer country are awarded a D–.
- Indeed Editorial Team, “How Unemployment Affects Individuals and the Economy,” Indeed, updated August 8, 2022.
- Aaron Hankin, “The Downside of Low Unemployment,” Investopedia, updated September 29, 2020.
Key findings
- Canada scores a C grade in employment growth and ranks fourth among the 16 peer countries in our ranking, with a compound annual growth rate of 1.5 per cent over 2019 to 2023.
- Despite pandemic-related setbacks in 2020, Canada’s employment levels have now surpassed pre-pandemic figures.
- Creating jobs creates positive cycles in the economy, which can help it grow.
- Prince Edward Island is the only province to earn an A in employment growth.
Canada ranks high in employment growth
Canada’s employment grew by 1.5 per cent, earning a C grade and securing the fourth spot among its peers. The employment landscape has largely rebounded from the pandemic’s impact, with only Japan still trailing behind its pre-pandemic levels.
Why employment growth matters
Creating jobs helps the economy grow
When someone is employed, they earn money that they spend on goods and services, which in turn causes companies to invest and hire more workers to meet the higher demand. More workers start the cycle over.
Creating jobs improves the well-being of citizens
Creating jobs isn’t only crucial for economic growth; it also improves the well-being of citizens . Being employed can help boost self esteem and create a sense of accomplishment and promise for the future. Employment is also a key path for lifelong learning and skills enhancement. Enhanced skills, in turn, can boost productivity and overall economic prosperity.
Canada has been a middle-of-the-pack performer
During the 1980s, despite an early recession, Canada led the peer group with employment growth of 2.4 per cent per year, achieving an A grade. However, this was juxtaposed with a C grade in unemployment, a paradox stemming from the rapid increase in labour force participation due to demographic shifts as baby boomers and women increasingly participated in the workforce. Canada also experienced higher immigration levels.
Canada’s grade in employment growth fell to a B in the 1990s, reflecting the severe recession that constrained employment to 1.3 per cent per year. The 2000s marked an improvement in growth to 1.8 per cent per year, although Ireland’s exceptional growth of 4.1 per cent pushed Canada’s relative performance down to a C. With Ireland’s employment growth tempering in the 2010s, Canada’s grade climbed back to a B.
Canada’s unemployment rate has improved
Prince Edward Island led all provinces and most peer countries, with growth of 2.9 per cent, earning it an A grade. Nova Scotia and Ontario earn Bs, while the rest of the provinces earn Cs or Ds.
Key findings
- In 2023, inflation rates in most peer countries in our ranking exceeded the Bank of Canada’s target range of 1 to 3 per cent.
- Canada’s inflation rate was 3.9 per cent, earning a B grade.
- High or rising inflation lowers consumers’ purchasing power and creates uncertainty.
- Inflation performance in all provinces improved in 2023.
How is inflation graded?
We award an A grade to inflation that falls within the Bank of Canada’s inflation-control target range, which is between 1 and 3 per cent.1 Inflation outside this target range (either above or below) gets a lower grade. The further away from the target range, the lower the grade.
| Grade | Criteria | Countries | Inflation rate |
|---|---|---|---|
| A | 1 to 3% | Switzerland | 2.14 |
| B | 0.5 to 1% or 3 to 4% | Japan | 3.27 |
| Denmark | 3.31 | ||
| Netherlands | 3.84 | ||
| Canada | 3.88 | ||
| C | 0 to 0.5% or 4 to 5% | Belgium | 4.05 |
| U.S. | 4.12 | ||
| France | 4.88 | ||
| D | Less than 0% or greater than 5% | Norway | 5.52 |
| Australia | 5.60 | ||
| Germany | 5.95 | ||
| Finland | 6.25 | ||
| Ireland | 6.30 | ||
| U.K. | 6.72 | ||
| Austria | 7.81 | ||
| Sweden | 8.55 |
Sources: Organisation for Economic Co-operation and Development; World Bank; Signal49 Research.
Canada is a B performer in inflation
Using our methodology, Canada receives a B with an inflation rate of 3.9 per cent in 2023. Only Switzerland had inflation within the Bank of Canada target range and receives an A. Inflation in 2023 was highest in Sweden.
Why inflation matters
Inflationary pressures moderated in 2023
Inflationary pressures in Canada moderated in 2023 from 6.8 per cent in 2022 to 3.9 per cent. But costs in critical areas like gasoline and shelter continued to be of concern.
Inflation has been mostly stable for 30 years
Inflation was a serious problem for Canada—and many other industrial countries—in the early 1970s and 1980s, peaking at 12.5 per cent in 1981. Two sharp jumps in oil prices and accommodative macroeconomic policies were the key factors behind this inflationary period.
Inflation performance among provinces was mixed
Inflation improved in all provinces in 2023. Nova Scotia recorded the largest drop in prices, from 8.9 per cent in 2022 to 2.9 per cent in 2023. Ontario was the worst-performing province in this indicator, earning a C, but still performing better than nine peer countries.
- Bank of Canada, “Inflation,” Bank of Canada, n.d., accessed January 22, 2023.
Key findings
- Canada ranks fourth among the 16 peer countries in our ranking, earning a B grade for its government net debt as a share of GDP.
- The amount of debt a country carries matters because high debt restricts the choices a government can make.
- Norway leads with the lowest net debt as a share of GDP, earning the sole A grade, while Japan holds the highest net debt share, placing it at the bottom of the rankings with a D grade.
- Ontario has the highest net debt share of the provinces, and British Columbia the lowest.
Canada’s performance is near the top of the group
In 2023, Canada’s government net debt as a share of GDP stood at 12.8 per cent, placing it fourth among its peers and securing a B grade.1 Norway is the top performer. It benefits from substantial sovereign wealth, which reduces its net debt considerably. Norway is among an elite group of countries that don’t need to borrow money to finance spending.
Conversely, Japan faces challenges that result in a D grade in this indicator. In the early 2000s, the Bank of Japan decided to boost economic growth through non-traditional economic policies, which pushed public debt up.2 Japan also has large expenses for healthcare and social security due to its aging population with high life expectancy and low birth rates. In 2023, Japan had a net debt share that was over 50 percentage points higher than that of France, which ranks second to last.
Net debt serves as a crucial indicator of a government’s financial health, reflecting the amount of debt a government would owe if it were to liquidate its financial assets.
Canada’s relatively low net debt share is thanks to its relatively uncommon investment in public pensions. In most countries, public pension investment is in government bonds. But the Canada Pension Plan and Quebec Pension Plan invest in assets like non-government bonds and stocks, resulting in lower net debt for Canada.
Why government debt matters
It restricts the choices a government can make
Debt results in debt-servicing costs, which can constrain government spending flexibility on other priorities like healthcare, education, and infrastructure.
It undermines a country’s ability to keep inflation under control
High net debt can make inflation difficult to manage, particularly through interest rate adjustments, without exacerbating the government’s financial burden.
Canada’s net debt share has fallen since the mid-1990s
In 1995, Canada’s net debt as a share of GDP was nearly 67 per cent. The ratio declined steadily until it hit 22.1 per cent in 2007, after which it increased modestly due to the financial crisis. It then declined to a low of 8.7 per cent in 2019. In 2020, with the onset of the pandemic, spending on programs increased the share to 16.1 per cent.
The International Monetary Fund forecasts a decline in Canada’s share over the next several years. In contrast, the U.S. net debt share has been increasing steadily.
Provinces have widely different debt shares
In 2022, Ontario’s net debt share of 25.9 per cent was the highest among the provinces. British Columbia was the only province to record a negative net debt. The Prairies varied, with Alberta and Saskatchewan recording shares below 7 per cent, while Manitoba’s was nearly 25 per cent. Quebec’s share, at 24.9 per cent, puts it second to last, while the Atlantic provinces fall in the middle of the pack.
These figures highlight the diverse fiscal landscapes across Canada’s provinces. Here, we compare only the provinces directly because the net debt data published by the International Monetary Fund in the international ranking includes assets that are not included in the provincial data from Statistics Canada, making it impossible to compare the provinces with the peer countries.
- Grades are awarded based on a methodology where the best-performing country is guaranteed an A and the worst-performing country is guaranteed a D.
- The Economic Times, “Japan’s Debt Mountain: How Is It Sustainable?,” The Economic Times, updated June 10, 2020, accessed January 23, 2023.
Key findings
- Canada receives a D grade in investment excluding dwellings as a percentage of GDP.
- Investment is a key measure of a country’s economic standing. It supports the production of more goods and services, ultimately boosting GDP.
- Over the past three decades, Canada’s investment share has not shown improvement.
- Canada invests less in intellectual property products and machinery and equipment than its peers—both vital areas for long-term prosperity.
- Provincial performance varies, but most provinces receive D grades.
Canada earns a D in investment
In 2023, Canada’s investment (gross fixed capital formation excluding dwellings) represented just 14.8 per cent of GDP, placing it 13th among 15 peer countries.1 This compares unfavourably with Sweden, the leader at 22.0 per cent.2
Key components of the investment metric include:
- non-residential structures
- machinery and equipment (e.g., transportation equipment, information and communication equipment, other equipment, military weapons systems)
- cultivated biological resources (e.g., plant or animal resources that yield repeat products, such as vineyards and orchards, eggs and milk)
- intellectual property products (e.g., research and development, mineral exploration, software and databases, literary and artistic originals)
Investment includes both private and government investment. It’s not a measure of total investment because it measures only the value of net additions to fixed assets, and various financial assets are excluded, as well as stocks of inventories.
Investment is a key measure of a country’s economic standing. It supports the production of more goods and services, ultimately boosting GDP.3
Why investment matters
It is a driver of growth
Investment is an important driver of economic growth. It not only increases GDP in the year of expenditure, but it also supports long-term growth through the improvement of infrastructure, machinery and equipment, and intellectual property. In general, the higher the investment in capital, the faster an economy can grow its aggregate income.
It points to future growth
Investment is often considered to be a meaningful indicator of future business activity, business confidence, and patterns of economic growth.
Canada’s investment share has declined since 2012
From the early 2000s until 2012, Canada’s investment as a share of GDP saw improvement. But this trend reversed after 2012.
Canada’s investment profile differs from its peers
The type of capital Canada invests in may not be supporting long-term prosperity.
The largest portion of Canada’s total investment is in dwellings, higher than any peer country. In contrast, Canada’s ratio of investment in intellectual property products is second lowest, above only Australia. Canada also invests a relatively low share in machinery and equipment.
Both are critical to enabling new technologies to enter the production process and boosting productivity growth and long-term prosperity.
Provincial grades in investment vary widely
Newfoundland and Labrador leads with a 20.0 per cent investment-to-GDP ratio (excluding dwelling) in 2022, earning a B grade. Conversely, New Brunswick records the lowest ratio at 11.8 per cent, placing last among all provinces and peer countries, thus earning a D– grade.
- Data were not available for Belgium.
- Grades are awarded based on a methodology where the best-performing country is guaranteed an A and the worst-performing country is guaranteed a D. When the provinces are added to the peer country comparator group, provinces that perform better than the best-performing peer country are awarded an A+ and provinces that perform worse than the worst-performing peer country are awarded a D–.
- Sean Ross, “How Capital Investment Influences Economic Growth,” Investopedia, updated February 6, 2024.