Why Canada’s GDP Growth is Modest Compared to Other Countries — And What That Really Means

Hi folks! When I look at Canada’s economy, it’s obvious that despite being wealthy, resource-rich, and mostly politically stable, the country’s GDP growth is modest compared to many developing nations. In this post, we’ll explore why that is, compare Canada to other countries like the U.S. and Australia, and break down the structural reasons behind its growth patterns.

1. How Canada’s Growth Compares to Low-GDP, Fast-Growing Countries

Over the past 24 months, several low-income countries have experienced remarkable growth. For example:

Rwanda: Real GDP growth of ~8–9% recently, with improvements in industrial policy and poverty reduction.
Ethiopia: Projected growth ~8% in 2025, with infrastructure and urbanization driving gains.
Guyana: Booming growth (~43% in 2024!) thanks to oil exports, though challenges remain in managing newfound wealth.

Contrast this with Canada, whose growth hovers around 1.5–2% annually.

Why the difference?
Developing countries are in “catch-up mode.” They move workers from subsistence agriculture to industry and services, adopt existing technologies, and rapidly urbanize. Canada, by contrast, is already near the technological frontier. Most improvements are incremental — shaving seconds off production lines, improving service efficiency — so growth is naturally slower.

2. Canada’s “Natural Plateau” Explanation

One way to explain Canada’s modest growth is to view it as the natural consequence of being a mature, high-income country:

High income: With a per capita GDP of ~$55,000 USD, most basic infrastructure, healthcare, and education needs are already met.
Strong institutions: Stable democracy, low corruption, safe banking systems, and predictable legal frameworks foster stability but not explosive growth.
Diversified economy: Canada’s mix of resources, manufacturing, and services spreads risk but prevents single-sector booms.
Demographics: An aging population and slow workforce growth naturally limit GDP expansion.
Incremental productivity: With most low-hanging gains already captured, growth comes in small, steady increments rather than leaps.

In this view, modest growth isn’t a problem — it’s a reflection of Canada’s resilience and stability.

3. The Alternate Perspective: Canada is Underperforming

Another viewpoint argues that Canada’s modest growth is not inevitable, but the result of structural weaknesses and policy choices:

Productivity lag: Canadian workers are less productive than U.S. counterparts in key sectors.
Capital misallocation: Excessive investment in housing instead of productive industries slows innovation.
Concentrated markets: Telecom, banking, and grocery sectors are less competitive, reducing dynamism.
Immigration underutilization: Skilled immigrants are often underemployed due to credential recognition and skills mismatch.
Regulatory friction: Multi-level governance can slow infrastructure and industrial projects.

Bottom line: With targeted reforms in productivity, capital allocation, and immigration integration, Canada could grow faster while maintaining its institutional strengths.

4. Comparing Canada to the U.S.

The U.S. grows faster than Canada despite being at a similar level of development:

Productivity advantage: American firms adopt technology faster and scale globally.
Market scale: A large domestic market supports growth and startup scaling.
Capital allocation: U.S. capital flows more into productive sectors rather than housing.
Competition and dynamism: U.S. markets are more flexible, allowing resources to move quickly to high-growth sectors.
Global currency and influence: The U.S. dollar’s reserve currency status attracts global capital, while U.S. multinationals dominate international markets.

Canada’s slower growth is partly natural, but structural and policy factors amplify the gap.

5. Comparing Canada to Australia

Canada and Australia share many similarities — high-income, resource-rich, democratic — yet Australia often outpaces Canada in GDP growth:

Factor	Canada	Australia	Why it Matters
Population	~40M	~27M	Canada has a slightly larger labor pool, but Australia integrates immigrants more effectively.
GDP Growth	~1.5–2%	~2–2.5%	Australia’s growth slightly higher due to resource demand and immigration integration.
Capital Allocation	Heavy into housing	More balanced (mining, infrastructure)	Canada’s over-reliance on real estate constrains productive investment.
Trade Orientation	Mostly U.S.	Strong ties to Asia	Exposure to fast-growing Asian markets boosts Australia’s GDP.
Productivity	Lags OECD	Higher in mining and services	Technology adoption and sector efficiency matter.

This highlights areas where bold choices could unlock new momentum such as shifting capital away from real estate and improving how immigration applicants are tied to productive careers. The choice now is whether to settle for steady but unspectacular growth in our current status-quo — or to embrace reforms that ensure prosperity keeps pace with the ambitions of its people.

DGB