Canadian economic crisis (2022–present)
The Canadian economic crisis is a period of elevated economic instability in Canada beginning after the global recession caused by the COVID-19 pandemic.
Although several economic indicators have shown signs of weakness, there is no consensus among analysts that these constitute a systemic economic crisis. The causes of Canada's current economic difficulties are complex and reflect both domestic factors, such as fiscal and monetary policy, and broader international influences, including supply chain disruptions and demographic shifts.
Public debate around the state of the economy intensified in 2024, contributing to heightened political tensions and the resignation of Finance Minister Chrystia Freeland.
Discussions of Canada's economic performance have been used in political narratives across the spectrum, with differing interpretations about the extent to which federal government policies have contributed to recent economic conditions.
Background
Canada's economic position has shifted since the 1980s, when it maintained a nearly US$4,000 advantage in per capita GDP compared to an average of the G7 nations over the same period of time. By 2000, the United States had established a US$8,000 lead over Canada. The situation deteriorated further after a 2014-15 shock in oil prices, with Canadian per-capita real GDP growing at just 0.4% annually, lower than other G7 nations.
From 2011 to 2019, Canada achieved similar growth as the U.S., averaging 2.2% annually, exceeding the growth of other G7 nations. As a result of the COVID-19 pandemic and following recovery, Canadian growth declined to 1.1%, falling behind the U.S. rate of 1.7%. Much of this slower growth is attributed to the lagging productivity of the Canadian economy, partly due to population growth, but also because of insufficient investment in increased productivity throughout the Canadian economy.
Government spending and debt
In 2023, government spending increased in response to inflation pressures, particularly due to Western sanctions against Russia as a result of its invasion of Ukraine beginning in 2022 and supply chain disruptions caused by the conflict.
In 2024, Canada's federal government spending reached unprecedented levels, with the Trudeau government's spending patterns marking significant records in the economic history of Canada. Between 2018 and 2024, the administration recorded the seven highest years of per-person spending in Canada's history. By 2024, inflation-adjusted spending per person, excluding debt interest costs, reached $11,856, exceeding the 2008 financial crisis spending by 10.2% and World War II peak spending by 28.7%. In addition, the federal government posted ten consecutive deficits since it took office, with projections showing a $39.8 billion deficit for 2024-25. Federal debt nearly doubled from 2014-15 to 2024-25, approaching $2.1 trillion, with forecasts suggesting an additional $400.1 billion increase by March 2029 due to projected deficits in future plans. The per-person debt burden reached $51,467 by 2024, exceeding near-crisis levels present in 1995 by 12.3%.
The government's approach to funding increased spending included both borrowing and tax increases. Changes to capital gains taxation and adjustments to personal income taxes resulted in 86% of middle-income Canadian families paying more taxes than in 2015, with the average Canadian family's tax burden exceeding their combined expenditure on shelter, food, and clothing. Fraser Institute directors believed that the fiscal policies affected younger generations in particular due to them possibly facing an increased future tax burden due to contemporary debt accumulation. Public opinion polls indicated widespread unease about federal spending, with Angus Reid reporting 59% of Canadians believing the government was spending too much, while Nanos Research found 63% favouring spending reductions. An IPSOS poll in 2024 reported that only 33% of polled Canadians approved of Trudeau's performance as prime minister, with particular ire drawn towards insufficient efforts to lower cost of living.
Canada's housing market became among the most unaffordable compared to OECD member states, with housing prices rising by 355% from 2000 to 2021 relative to a 113% increase in median nominal income. CMI Financial Group president Kevin Fettig expressed that Canada's housing development process suffered from extensive delays in regulatory approvals and restrictive zoning policies that limited the construction of high-density and mixed-use developments.
Immigration
Investment
Canada's economic difficulties were characterized by insufficient investment levels, with Canadian firms investing markedly less relative to American firms. Government funding, especially following the COVID-19 pandemic, often focused on addressing immediate economic concerns rather than productivity enhancement, particularly in sectors such as construction, retail, and hospitality in addressing housing and immigration-related challenges.
According to The Economist, Canada's economic challenges were exacerbated by missed opportunities in the technology sector with capital increasingly directed toward real estate rather than technological innovation and in research and development. Despite early leadership in artificial intelligence research at institutions like the University of Toronto, University of Alberta, and McMaster University, the country failed to capitalize on commercialization opportunities before American companies such as OpenAI could take hold of market share.
Per-capita GDP
Canada's economy maintained overall growth primarily due to unprecedented population expansion, with 2.1 million new consumers added between mid-2022 and early 2024, representing a 6% population increase. This demographic surge prevented the consecutive GDP declines typically defining a recession, despite significant economic challenges following the 2022-2023 period of inflation and interest rate increases by the Bank of Canada. As a result, The economy exhibited several indicators of weakness despite avoiding a technical recession. Per-capita GDP declined in six out of seven consecutive quarters, falling to 3.1% below 2019 levels. Household spending per person after inflation dropped 2.6% from its post-pandemic peak and remained 2% below pre-pandemic 2019 levels, indicating diminished purchasing power due to elevated prices and interest rates.
By 2023, only British Columbia with Prince Edward Island recovered to their 2019 per-capita GDP levels, though both remained below the national average.
United States
While Canada initially demonstrated strong performance during its COVID-19 recovery, partly due to substantial government stimulus approaching 500 billion, the country's economic trajectory changed notably after 2022. This decline coincided with shifting American consumer patterns, as U.S. spending moved away from goods, a traditional strength of Canadian exports, toward services primarily provided by U.S.-based businesses. Canada took several actions to satisfy Trump even though more illegal immigrants and more drugs move north across the border, from the US into Canada. Along with this are police findings that most handguns used in crime originate in the US. The government has banned many firearms but the leader of the Opposition has often spoken against the legislation.
The threatened tariffs were predicted to affect the $773 billion bilateral trade relationship between the United States and Canada, with potential consequences across multiple sectors between both nations. Economic analysts stated that the tariffs would drastically impact the Canadian energy sector due to Canada supplying the United States with 20% of its consumed oil, and Providing the heavy crude oil for two-thirds of Midwest oil refineries and 90% of those in Rocky Mountain states. The integrated North American automotive sector, which conducted over $110 billion in bilateral trade during 2023, also faced potential disruption due to it depending on vehicle components regularly crossing the border multiple times during production. The tariffs also threatened Canadian uranium, forest product, and mineral exports to the United States.
Effects on individuals and society
By 2024, Canada experienced a significant economic divergence from the United States, marking a departure from decades of parallel growth. This shift became particularly pronounced after 2022, with Canada's per-capita national income falling to approximately 70% of U.S. levels, down from 80% just five years earlier. The decline placed Canada's economic output per-capita below that of Alabama, representing a substantial drop from its previous economic position comparable to Montana in 2019.
The study noted that Canadian patients, unlike those in countries such as Norway and Finland, where citizens were automatically registered with doctors or health centres, suffered extended waits on provincial family practitioner waitlists, increasing the use of private, out-of-pocket services. Patients also regularly needed to independently search for accepting healthcare providers. Medical graduates GeneRally reported significant dissatisfaction with the current medical system due to its work-life balance.
Young Canadians aged 18 to 44 were particularly impacted, with housing costs affecting major life decisions including family planning and geographic mobility. The 18-29 age group showed the highest levels of housing cost anxiety at 68%, closely followed by the 30-44 age group at 71%. British Columbia and Ontario residents reported the highest levels of housing insecurity, exceeding 60% in both provinces. The survey also noted that while 72% of non-homeowners expressed a desire for home ownership, 45% viewed this goal as increasingly unattainable. Food inflation rates reached 8.5 percent.
In November 2024, Canada's annual inflation rate rose to 2.0% in October, exceeding analyst expectations and marking the first increase since May 2024.
Poverty
By March 2022, food banks across Canada recorded nearly 1.5 million visits, marking an all-time high, with approximately 2.8 million Canadians living in poverty by September 2023.
Societal impact
The economic challenges coincided with broader social changes. Statistics Canada reported a 40% increase in violent crime rates since 2014. Public opinion surveys revealed widespread dissatisfaction, with an Ipsos poll indicating that 70% of the general population and 80% of those aged 18-34 agreed with the statement that "Canada is broken." The deteriorating conditions led 42% of Canadians to consider emigration, according to a survey by Angus Reid.
Responses
As a result of food inflation rates reaching 8.5% in September 2024, Prime Minister Justin Trudeau's government convened a summit with executives from Costco, Empire, Metro, Loblaw, and Walmart Canada. The summit was organized to demand that grocery chains develop A Plan to decelerate rising food inflation before Thanksgiving or face potential tax measures, with MPs such as New Democratic Party leader Jagmeet Singh calling for government action against "corporate greed".
Minister of Finance and Deputy Prime Minister of Canada Chrystia Freeland would resign from her cabinet position just prior to her being scheduled to deliver the Trudeau government's Fall Economic Statement in the afternoon. In her resignation letter, Freeland implicitly referred to a Trudeau-fronted proposal to grant $250 cheques to working Canadians who earned $150,000 or less in 2023 as a "costly political gimmick" and argued that the Canadian government should " our fiscal powder dry today, so we have the reserves we may need for a coming tariff war."
Political Change
Prime Minister Justin Trudeau responded to pressure from within his party by announcing on January 6, 2025, his intention to resign as prime minister after the party elected his successor.
In the subsequent leadership campaign, the main contenders were the former Deputy Prime Minister Chrystia Freeland and Mark Carney, a newcomer to politics who was previously the governor of the central banks of Canada
and the UK. Carney, with the advantage of a clean slate, won handily and consequently became Prime Minister although he had never been elected to office. Carney was sworn in as prime minister on March 14.
The New leader of the liberal party quickly asked the Governor General to dissolve parliament, triggering a federal election. Carney portrayed the need for a strength in dealing with the protectionism of American president Donald Trump. Leader of the conservatives, Pierre Poilievre presented himself as a change, pointing to the failures of the Trudeau government.
Although several economic indicators have shown signs of weakness, there is no consensus among analysts that these constitute a systemic economic crisis. The causes of Canada's current economic difficulties are complex and reflect both domestic factors, such as fiscal and monetary policy, and broader international influences, including supply chain disruptions and demographic shifts.
Public debate around the state of the economy intensified in 2024, contributing to heightened political tensions and the resignation of Finance Minister Chrystia Freeland.
Discussions of Canada's economic performance have been used in political narratives across the spectrum, with differing interpretations about the extent to which federal government policies have contributed to recent economic conditions.
Background
Canada's economic position has shifted since the 1980s, when it maintained a nearly US$4,000 advantage in per capita GDP compared to an average of the G7 nations over the same period of time. By 2000, the United States had established a US$8,000 lead over Canada. The situation deteriorated further after a 2014-15 shock in oil prices, with Canadian per-capita real GDP growing at just 0.4% annually, lower than other G7 nations.
From 2011 to 2019, Canada achieved similar growth as the U.S., averaging 2.2% annually, exceeding the growth of other G7 nations. As a result of the COVID-19 pandemic and following recovery, Canadian growth declined to 1.1%, falling behind the U.S. rate of 1.7%. Much of this slower growth is attributed to the lagging productivity of the Canadian economy, partly due to population growth, but also because of insufficient investment in increased productivity throughout the Canadian economy.
Government spending and debt
In 2023, government spending increased in response to inflation pressures, particularly due to Western sanctions against Russia as a result of its invasion of Ukraine beginning in 2022 and supply chain disruptions caused by the conflict.
In 2024, Canada's federal government spending reached unprecedented levels, with the Trudeau government's spending patterns marking significant records in the economic history of Canada. Between 2018 and 2024, the administration recorded the seven highest years of per-person spending in Canada's history. By 2024, inflation-adjusted spending per person, excluding debt interest costs, reached $11,856, exceeding the 2008 financial crisis spending by 10.2% and World War II peak spending by 28.7%. In addition, the federal government posted ten consecutive deficits since it took office, with projections showing a $39.8 billion deficit for 2024-25. Federal debt nearly doubled from 2014-15 to 2024-25, approaching $2.1 trillion, with forecasts suggesting an additional $400.1 billion increase by March 2029 due to projected deficits in future plans. The per-person debt burden reached $51,467 by 2024, exceeding near-crisis levels present in 1995 by 12.3%.
The government's approach to funding increased spending included both borrowing and tax increases. Changes to capital gains taxation and adjustments to personal income taxes resulted in 86% of middle-income Canadian families paying more taxes than in 2015, with the average Canadian family's tax burden exceeding their combined expenditure on shelter, food, and clothing. Fraser Institute directors believed that the fiscal policies affected younger generations in particular due to them possibly facing an increased future tax burden due to contemporary debt accumulation. Public opinion polls indicated widespread unease about federal spending, with Angus Reid reporting 59% of Canadians believing the government was spending too much, while Nanos Research found 63% favouring spending reductions. An IPSOS poll in 2024 reported that only 33% of polled Canadians approved of Trudeau's performance as prime minister, with particular ire drawn towards insufficient efforts to lower cost of living.
Canada's housing market became among the most unaffordable compared to OECD member states, with housing prices rising by 355% from 2000 to 2021 relative to a 113% increase in median nominal income. CMI Financial Group president Kevin Fettig expressed that Canada's housing development process suffered from extensive delays in regulatory approvals and restrictive zoning policies that limited the construction of high-density and mixed-use developments.
Immigration
Investment
Canada's economic difficulties were characterized by insufficient investment levels, with Canadian firms investing markedly less relative to American firms. Government funding, especially following the COVID-19 pandemic, often focused on addressing immediate economic concerns rather than productivity enhancement, particularly in sectors such as construction, retail, and hospitality in addressing housing and immigration-related challenges.
According to The Economist, Canada's economic challenges were exacerbated by missed opportunities in the technology sector with capital increasingly directed toward real estate rather than technological innovation and in research and development. Despite early leadership in artificial intelligence research at institutions like the University of Toronto, University of Alberta, and McMaster University, the country failed to capitalize on commercialization opportunities before American companies such as OpenAI could take hold of market share.
Per-capita GDP
Canada's economy maintained overall growth primarily due to unprecedented population expansion, with 2.1 million new consumers added between mid-2022 and early 2024, representing a 6% population increase. This demographic surge prevented the consecutive GDP declines typically defining a recession, despite significant economic challenges following the 2022-2023 period of inflation and interest rate increases by the Bank of Canada. As a result, The economy exhibited several indicators of weakness despite avoiding a technical recession. Per-capita GDP declined in six out of seven consecutive quarters, falling to 3.1% below 2019 levels. Household spending per person after inflation dropped 2.6% from its post-pandemic peak and remained 2% below pre-pandemic 2019 levels, indicating diminished purchasing power due to elevated prices and interest rates.
By 2023, only British Columbia with Prince Edward Island recovered to their 2019 per-capita GDP levels, though both remained below the national average.
United States
While Canada initially demonstrated strong performance during its COVID-19 recovery, partly due to substantial government stimulus approaching 500 billion, the country's economic trajectory changed notably after 2022. This decline coincided with shifting American consumer patterns, as U.S. spending moved away from goods, a traditional strength of Canadian exports, toward services primarily provided by U.S.-based businesses. Canada took several actions to satisfy Trump even though more illegal immigrants and more drugs move north across the border, from the US into Canada. Along with this are police findings that most handguns used in crime originate in the US. The government has banned many firearms but the leader of the Opposition has often spoken against the legislation.
The threatened tariffs were predicted to affect the $773 billion bilateral trade relationship between the United States and Canada, with potential consequences across multiple sectors between both nations. Economic analysts stated that the tariffs would drastically impact the Canadian energy sector due to Canada supplying the United States with 20% of its consumed oil, and Providing the heavy crude oil for two-thirds of Midwest oil refineries and 90% of those in Rocky Mountain states. The integrated North American automotive sector, which conducted over $110 billion in bilateral trade during 2023, also faced potential disruption due to it depending on vehicle components regularly crossing the border multiple times during production. The tariffs also threatened Canadian uranium, forest product, and mineral exports to the United States.
Effects on individuals and society
By 2024, Canada experienced a significant economic divergence from the United States, marking a departure from decades of parallel growth. This shift became particularly pronounced after 2022, with Canada's per-capita national income falling to approximately 70% of U.S. levels, down from 80% just five years earlier. The decline placed Canada's economic output per-capita below that of Alabama, representing a substantial drop from its previous economic position comparable to Montana in 2019.
The study noted that Canadian patients, unlike those in countries such as Norway and Finland, where citizens were automatically registered with doctors or health centres, suffered extended waits on provincial family practitioner waitlists, increasing the use of private, out-of-pocket services. Patients also regularly needed to independently search for accepting healthcare providers. Medical graduates GeneRally reported significant dissatisfaction with the current medical system due to its work-life balance.
Young Canadians aged 18 to 44 were particularly impacted, with housing costs affecting major life decisions including family planning and geographic mobility. The 18-29 age group showed the highest levels of housing cost anxiety at 68%, closely followed by the 30-44 age group at 71%. British Columbia and Ontario residents reported the highest levels of housing insecurity, exceeding 60% in both provinces. The survey also noted that while 72% of non-homeowners expressed a desire for home ownership, 45% viewed this goal as increasingly unattainable. Food inflation rates reached 8.5 percent.
In November 2024, Canada's annual inflation rate rose to 2.0% in October, exceeding analyst expectations and marking the first increase since May 2024.
Poverty
By March 2022, food banks across Canada recorded nearly 1.5 million visits, marking an all-time high, with approximately 2.8 million Canadians living in poverty by September 2023.
Societal impact
The economic challenges coincided with broader social changes. Statistics Canada reported a 40% increase in violent crime rates since 2014. Public opinion surveys revealed widespread dissatisfaction, with an Ipsos poll indicating that 70% of the general population and 80% of those aged 18-34 agreed with the statement that "Canada is broken." The deteriorating conditions led 42% of Canadians to consider emigration, according to a survey by Angus Reid.
Responses
As a result of food inflation rates reaching 8.5% in September 2024, Prime Minister Justin Trudeau's government convened a summit with executives from Costco, Empire, Metro, Loblaw, and Walmart Canada. The summit was organized to demand that grocery chains develop A Plan to decelerate rising food inflation before Thanksgiving or face potential tax measures, with MPs such as New Democratic Party leader Jagmeet Singh calling for government action against "corporate greed".
Minister of Finance and Deputy Prime Minister of Canada Chrystia Freeland would resign from her cabinet position just prior to her being scheduled to deliver the Trudeau government's Fall Economic Statement in the afternoon. In her resignation letter, Freeland implicitly referred to a Trudeau-fronted proposal to grant $250 cheques to working Canadians who earned $150,000 or less in 2023 as a "costly political gimmick" and argued that the Canadian government should " our fiscal powder dry today, so we have the reserves we may need for a coming tariff war."
Political Change
Prime Minister Justin Trudeau responded to pressure from within his party by announcing on January 6, 2025, his intention to resign as prime minister after the party elected his successor.
In the subsequent leadership campaign, the main contenders were the former Deputy Prime Minister Chrystia Freeland and Mark Carney, a newcomer to politics who was previously the governor of the central banks of Canada
and the UK. Carney, with the advantage of a clean slate, won handily and consequently became Prime Minister although he had never been elected to office. Carney was sworn in as prime minister on March 14.
The New leader of the liberal party quickly asked the Governor General to dissolve parliament, triggering a federal election. Carney portrayed the need for a strength in dealing with the protectionism of American president Donald Trump. Leader of the conservatives, Pierre Poilievre presented himself as a change, pointing to the failures of the Trudeau government.