Population growth hides recession economies


If you believe Australia is a Ponzi economy, spare a thought for Canada.

Canada’s population surged by more than 1.2 million people last year, driven almost entirely by net overseas migration:

Canada's population surge

This population surge has created a diabolical shortage of housing across Canada:

Canada housing shortage

With housing starts failing miserably to keep pace with population growth:

Canada home building

In turn, Canada’s rental vacancy rate has collapsed to a record low:

Canada rental vacancy rate

And Canada’s rents have soared into the stratosphere:

Canadian rental inflation

The population surge has also wrecked Canada’s productivity because business investment, infrastructure and housing have failed to keep up.

As a result, Canada has experienced severe “capital shallowing”, which has pulled down labour productivity (GDP per hour worked):

Canada capital shallowing

Canada’s record population growth has kept the aggregate economy growing at a somewhat respectable pace.

However, real per capita GDP is tracking at around 2017 levels:

Canada GDP

Canada’s per capita recession is also reflected in retail sales, which have grown in aggregate but fallen heavily in per capita terms:

Canada retail sales

Basically, the aggregate Canadian economy continues to grow thanks to extreme population growth, but everybody’s share of the economic pie (and living standards) is shrinking.


The only upside is that the weak Canadian economy has seen CPI inflation fall sharply across Canada:

Canada CPI inflation

Moreover, without shelter inflation (e.g. rents), inflation would already be within the Bank of Canada’s target:

Canada inflation minus shelter

Similar, albeit less extreme, forces are playing out in Australia.

Australia’s record immigration has also delivered a per capita recession, falling per capita retail sales, and strongly rising rents, which has helped push up CPI inflation.

Australian GDP growth

Australia has also experienced similar “capital shallowing” to Canada, which has killed productivity growth.

Australian Capital shallowing

Canada and Australia are text book examples of what not to do if the goal is to increase the living standards of the incumbent resident population.

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.