In each EconMinute, Business Council of Alberta economist Alicia Planincic seeks to better understand the economic issues that matter to Canadians: from business competitiveness to housing affordability to living standards and our country’s lack of productivity growth. She strives to answer burning questions, tackle misconceptions, and uncover what’s really going on in the Canadian economy.
Canada’s economic gap with the U.S. recently reached a new record. And, according to the most recent forecast by the International Monetary Fund (IMF), this divergence is set to grow.
Though the IMF is well known for its headline forecasts which estimate economic growth over the next couple of years—and make Canada look more competitive with the U.S.—they also publish longer-term, per capita forecasts through 2029. And these do not look good. While the U.S. is set to sail further ahead of other rich countries, Canada is expected to slip further behind.
Graphic credit: Janice Nelson.
Seeing a growing gap of this magnitude is worrying and raises the question of what needs to be done to correct course so we don’t continue to lose ground.
But how seriously can we take a longer-term forecast? These forecasts are like trying to predict how well your hockey team is going to do three years from now; you have enough information to get a general sense of whether they’ll be good or bad, but any number of unknown factors could change the outcome.
Often times with long-term economic forecasts, reality proves to be very different from what economists had expected. For this exact reason, it would be a mistake to jump to any conclusions based on just one forecast.
Unfortunately, the expectation that Canada will lose ground to the U.S. isn’t limited to one forecast. The growing divergence between the two economies has been expected for some time, and by several different organizations.
For instance, both an older forecast by the IMF (published in 2022) and another by the OECD (published in 2021) tell the same story: that Americans will grow increasingly richer than Canadians.
Based on the average of these forecasts, while Canadians are expected to increase the value of their economy by around $2,000 per person from 2023 to 2029, Americans are expected to increase the value of theirs by nearly $7,000.
This means the gap will grow from an already large $18,000 today to $23,000 by the end of the decade (in 2017 dollars). This would leave Americans 40 percent richer than Canadians. That is similar in percentage terms to the difference between Russia and France, or Greece and the U.K. today—countries with very different living standards from one another.
What’s more is, every time a new forecast comes out, expected growth in the U.S. gets stronger, while Canada’s outlook remains weak.
Back to the point about the hockey team: these forecasts are not foolproof. The policies of the Trump administration, for instance, could easily blow expectations out of the water. But it would be a mistake to dismiss the trajectory because we don’t like how it looks for Canada.
A version of this post was originally published by the Business Council of Alberta at businesscouncilab.com.
Alicia Planincic is the Director of Policy & Economics at the Business Council of Alberta. She regularly provides insight and analysis on the Canadian economy, public finances, labour markets, equity and social mobility, and public policy.
