Skip to main content
Social Sci LibreTexts

4.2: Canadian Economic Performance

  • Page ID
    11803
  • The positive relationship between economic performance and standards of living motivates the study of macroeconomics and macroeconomic policy. Table 4.2 provides a summary of performance in Canada and the U.S. based on the three main indicators defined above. It examines and compares Canada and U.S. real GDP growth, inflation and unemployment in the 2000-2011 time period. To recognize the dramatic shift in economic conditions brought on by the 2008 financial crisis, the data are presented as annual averages for the 2000-2008 period and then as annual averages for 2009-2011.

    Screenshot 2019-02-27 at 12.26.54.png

    Table 4.2: Real GDP Growth, Inflation & Unemployment
    Sources: Statistics Canada, CANSIM series V1992067, V41690914,
    V2062815; US Department of Commerce, BEA series GDPC1 Department
    of Labour, BLS series CPI AUSL, UNRATE.

    Before the financial crisis in 2008 the average performances of both economies were equally strong. GDP growth rates in the 2.0 to 2.6 range were sufficient to maintain relatively low unemployment rates without serious inflationary pressures. In Canada, the inflation rate was comfortably within the Bank of Canada’s 1%-3% target range. Similar U.S. inflation and lower unemployment were also consistent with implicit policy targets. These were generally good economic times despite wars in Iraq and Afghanistan and persistent anxiety over terrorism.

    The financial crisis of 2008 created a sharp recession and prolonged recovery that is still fragile. In terms of the indicators of performance, economic growth rates collapsed to negative values in 2009 as outputs of goods and services declined in both Canadian and US economies. Inflation rates fell and unemployment rates increased as reduced production led to employee layoffs. Growth rates did recover in 2010 but not sufficiently to increase output and employment to previous levels as population and labour force continued to grow. Over the four years period 2009-2013, unemployment rates were higher in both Canada and the US than they were in 2000-2008 and economic prospects in Europe are even more uncertain.

    Figures 4.1 to 4.4 provide a more detailed look at real GDP growth, inflation, and unemployment in Canada over these time same periods. They show the trends and annual variations in these measures of economic performance that lie behind the averages in Table 4.2. Understanding the causes of these short-term fluctuations in economic performance, their effects on standards of living and the economic policy questions they raise, are major reasons for studying macroeconomics.

    Figure 4.1 shows the substantial growth in real GDP over the 2000-2013 period. It also shows that growth was not steady. Real GDP did increase from 2000-2008 with annual growth rates ranging from 1.5-3.0. Then the real GDP declined sharply by 3.0 percent in 2009. This and other times of negative growth in real GDP are called recessions. Indeed the fall in real GDP in 2009, the largest since such decline since the 1930’s, is now called the ‘Great Recession’.

    Recession: decline in economic activity, often defined as two consecutive quarters of negative growth in real GDP.


    Screenshot 2019-02-27 at 12.30.32.png

    Figure 4.1: Real GDP in Canada 2000-2013
    Source: CANSIM Table 380-0106

    Figure 4.2 shows more clearly the considerable fluctuations in real GDP annual growth rates and the negative growth rate of the Great Recession. Annual growth rates varied from about 1.1 percent in 2008 to 3.3 percent in 2010. Even when the trend in growth is positive, fluctuations in growth rates can have negative effects on standards of living. We study macroeconomics to find explanations for the causes and effects of these fluctuations in economic activity that will guide stabilization policies.

    Screenshot 2019-02-27 at 12.32.38.png

    Figure 4.2: Annual Real GDP Growth in Canada, 2001-2013
    Source: CANSIM Table 380-0106 and author's calculations

    The period averages of inflation rates in Table 4.2 also hide the volatility of annual inflation rates in Canada. Figure 4.3 shows annual inflation rates in Canada since 2000. These annual values show the relative stability of Canadian inflation in the years leading up to the Great Recession. That pattern changed after 2008 with the effects of lower output growth and higher unemployment on prices and wage rates.

    Screenshot 2019-02-27 at 12.35.20.png

    Figure 4.3: Annual Inflation Rates in Canada, 2000-2013
    Source: Statistics Canada, CANSIM series V41690914

    Our recent experience with low and stable inflation rates in the 2000-2014 period, is quite different from past experience.

    We will examine the roles that monetary policies and recessions played in these changes in inflation rates.

    Fluctuations in growth rates and inflation rates are also accompanied by fluctuations in unemployment rates. Annual unemployment rates plotted in Figure 4.4 have fluctuated between 6 percent and 8.3 percent. Although employment in the has grown over time, when job creation has at times fallen short of the growth in the labour force unemployment rates rise. At other times, strong real GDP growth and job creation have lowered the unemployment rate. The falling unemployment rates from 2002 to 2007 coincided in time with the continuous growth in real GDP we saw in Figure 4.1.

    Screenshot 2019-02-27 at 12.37.44.png

    Figure 4.4: Annual Unemployment Rates in Canada 2001-2013
    Source: Statistics Canada CANSIM series V2062815

    The sharp rise in unemployment in 2009 and the persistence of unemployment rates higher than those in earlier years give us an example of the way growth in real GDP and employment are tied together. The recovery of GDP growth after the Great Recession has not been strong enough to offset modest growth in the labour force and lower unemployment rates to pre-recession levels.

    Table 4.3 provides an international perspective on unemployment rates. It shows that measured unemployment rates differ quite widely among countries. Furthermore, unemployment rates change over time in different ways across countries. Most but not all countries experienced sharply higher unemployment after 2008 as the financial U.S. crisis spread internationally. Korea and Germany were the exceptions based strong domestic and export demand. There was some moderation in unemployment rates in the following two years for all countries except Greece. In that case the government debt crisis, aggravated by the recession, led to strong fiscal austerity as a condition of financial support from other European countries. The result was a deeper recession and continued growth in public debt. High unemployment rates in other European countries also reflect difficult economic conditions and government deficit and debt problems.

    Screenshot 2019-02-27 at 12.39.43.png

    Table 4.3: Unemployment Rates Selected Countries 2008, 2010, 2012 (percent of labour force)
    Source: International Labour Office: ILOSTAST Database 2013