In the annals of the Group of Seven, Canada’s distinction in early 2026 is an unenviable one. It is the sole member whose economy contracted in the final quarter of 2025, with real GDP estimated to have shrunk by 0.2 percent while peers posted gains.
This is not mere cyclical bad luck. It is the culmination of a decade-plus of stagnating living standards, eroding productivity, and policy choices that prioritised rapid population growth over sustainable prosperity.
For a nation once admired for its resilience – navigating the 2008 financial crisis better than most – Canada’s current trajectory signals deeper structural failures.
As the anniversary issue of the Daily Times of Bangladesh focuses on global shifts, I chose to write about this moment that demands unflinching scrutiny, not only for Canadians but also for nations like Bangladesh, intertwined through migration, trade, and shared aspirations for development.
Canada’s relative decline did not begin yesterday. After 2000, labour productivity growth slowed dramatically. From the 1960s to the 1970s, the average was about 3 percent annually.
It fell to about 1 percent between 2000 and 2019 and has performed even worse recently. Compared with G7 peers, Canada’s productivity gap has widened, especially relative to the United States.
In 1971, Canadian productivity exceeded the G7 average; by the early 1980s, it trailed the G7 average, and the deficit has widened since the 2000s. Real GDP per capita tells the stark story of living standards.
From 2014 to 2024, Canada’s per-person GDP grew by a meagre 3.2 percent – the third-lowest in the OECD – while the OECD average was 15.3 percent. Canada’s per capita GDP slipped from 98 percent of the G7 average in 2014 to 92 percent in 2024, now the second-lowest in the group (ahead only of Japan).
Total GDP has grown respectably at times due to population growth, but per capita figures reveal the hollowness: between 2014 and 2023, population growth accounted for the vast majority of headline GDP expansion, while productivity per worker was essentially flat (up just 0.1 percent).
This ‘lost decade’ predates recent governments but accelerated under high-immigration, high-spending policies. Pre-pandemic, Canada matched U.S. headline growth, partly due to demographics, but per capita performance lagged.
Post-pandemic, productivity has flatlined or declined, while the U.S. has advanced. Business investment has been weak, regulatory burdens have been heavy, and interprovincial trade barriers have been persistent. Resource wealth provided a buffer, but over-reliance on commodities, without productivity gains in services and manufacturing, left the economy vulnerable.
One way to understand Canada’s predicament is through the lens of endogenous growth theory and the economics of productivity.
Since the pioneering work of economists such as Paul Romer and Robert Lucas, advanced economies have increasingly been judged not by how rapidly they expand their labour force but by how efficiently they transform labour, capital, technology, and knowledge into higher output per worker.
Population growth can certainly increase total GDP, but unless it is accompanied by sustained investment in physical capital, innovation, research and development, infrastructure, and human capital, it eventually reduces capital available per worker and weakens productivity growth.
Canada’s experience over the past decade reflects precisely this dilemma. Rapid population expansion generated respectable aggregate GDP growth, yet business investment per worker declined, research intensity stagnated, and capital deepening failed to keep pace with labour force growth.
Economists often describe this as the difference between extensive and intensive growth. Extensive growth depends primarily on adding more workers, while intensive growth depends on making every worker more productive.
History consistently shows that only the latter generates lasting increases in national wealth and living standards.
Canada’s trajectory becomes even more striking when compared with its G7 partners and, unexpectedly, with Russia. The United States has maintained significantly stronger productivity growth through massive investment in technology, artificial intelligence, venture capital, and advanced manufacturing.
Germany continues to leverage high-value manufacturing and industrial exports despite demographic challenges.
France and Italy, while facing slow growth and ageing populations, have generally avoided the sharp decline in GDP per capita witnessed in Canada because their demographic expansion has been far more modest. Japan offers perhaps the closest historical parallel.
It has endured decades of slow economic growth, yet its stagnation has largely been driven by demographic decline rather than unusually rapid population growth.
Canada, paradoxically, has demonstrated that even one of the fastest-growing populations in the developed world cannot guarantee rising prosperity if productivity fails to improve. Russia presents another instructive contrast.
Despite unprecedented Western sanctions following the invasion of Ukraine, its economy has remained more resilient than many early forecasts predicted, supported by energy exports redirected toward Asia, extensive fiscal intervention, and wartime industrial production.
However, these gains raise significant questions about their long-term sustainability. The comparison does not suggest that Russia represents a superior economic model.
Rather, it illustrates a broader principle: long-term economic performance is ultimately determined less by a country’s population size than by the productivity, efficiency, and adaptability of its economic institutions.
Mark Carney’s transition from Bank of Canada governor (2008-2013) and Bank of England head to Prime Minister in 2025 brought technocratic credentials and promises of stability amid global turbulence, including U.S. tariffs.
His early tenure emphasised accelerating infrastructure development, diversifying trade, adjusting taxes (including middle-class tax cuts and carbon tax tweaks), increasing defence spending, and advancing ‘national interest’ projects.
Yet the Q4 2025 contraction occurred on his watch, amid inventory drawdowns, softer investment, and external pressures. Supporters highlight IMF projections of the second-fastest G7 growth in 2026-2027 and resilient fundamentals, such as low net debt-to-GDP.
Critics note persistent challenges: government spending growth outpacing peers, regulatory hurdles slowing projects, and a lack of visible productivity breakthroughs in his first year-plus.
Carney’s background in crisis management served Canada well in 2008, with swift rate cuts aiding recovery. As PM, the focus on ‘building’ and diversification is directionally sound, but has yet to reverse entrenched stagnation.
Early moves, such as ending consumer carbon tax elements and pushing to remove interprovincial trade barriers, signal pragmatism, but outcomes lag rhetoric.
By mid-2026, forecasts show a modest rebound (around 1.1-1.5 percent GDP growth), yet per capita gains remain elusive amid demographic shifts. The Carney era risks becoming another chapter of managed decline unless productivity reforms – tax competitiveness, deregulation, and capital investment incentives – accelerate decisively.
No factor explains Canada’s divergence more than its surge in immigration. Nearly 100 percent of recent labour force growth came from newcomers. Targets peaked at hundreds of thousands annually, including temporary residents, driving population growth well above G7 peers (e.g., 3.2 percent at peaks).
This boosted headline GDP but masked per capita stagnation and strained infrastructure. Housing affordability collapsed; Canada now ranks among the worst in the OECD. Studies link recent immigrant inflows to 11-21 percent increases in house prices and rents during key periods and in key municipalities.
High demand outstripped supply amid zoning, regulatory, and construction labour bottlenecks – ironically exacerbated by skill mismatches.
Rents and prices soared, contributing to inflationary pressures. Wage effects are contested but point to downward pressure in lower-skill segments, with overall productivity diluted by rapid inflows of low- to medium-skilled workers relative to capital and infrastructure.
The underemployment of skilled immigrants costs billions in lost GDP annually. Public services – healthcare and education – faced overload. By 2025-2026, the policy pivoted: permanent resident targets were moderated to 380,000 annually, with an emphasis on economic class and labour needs, and temporary resident cuts.
For Bangladesh, Canada’s shifts matter. Bilateral trade exceeds $3.5 billion, with Bangladesh exporting garments and importing Canadian pulses, potash, and cereals.
Remittances from the Bangladeshi diaspora in Canada support families and contribute to GDP, though they are smaller than flows from the Middle East. Canadian immigration policies have offered pathways for skilled and family migrants, aiding poverty reduction and knowledge transfer back home.
Moderated targets may tighten opportunities, potentially slowing remittance growth and skilled outflow. Yet, a more sustainable Canadian economy – higher wages, stable demand – could benefit Bangladeshi exports (e.g., apparel) and diaspora stability in the long term.
Bangladesh’s own growth story (garments and remittances driving 6-7 percent of GDP at times) offers a mirror: success hinges on productivity, not just on labour export. Canada’s struggles underscore the risks of over-reliance on demographic pumps without domestic reforms.
Barring bold changes, Canada’s outlook is subdued. Private forecasters project 1.1 percent GDP growth in 2026, rising toward 1.5-1.9 percent, with the IMF optimistic about relative G7 performance.
Longer term (to 2035), baseline scenarios project 1.2 percent annual growth under moderated immigration, with per capita growth improving modestly as pressures ease, but productivity remains the binding constraint.
Risks abound: U.S. tariffs, aging demographics (without high immigration), weak business investment, and global fragmentation. Debt dynamics, though currently favourable, could worsen if spending outpaces growth.
Upside potential lies in the energy transition, critical minerals, AI, and trade diversification – if Carney-style infrastructure and investment plans deliver. Doubling housing construction, expanding skills training, and deregulation could lift potential output.
Realistically, without addressing productivity (tax reform, reduced red tape, capital deepening, innovation), Canada risks Japan-like stagnation: solid aggregates masking per capita malaise, declining global influence, and eroding social cohesion.
Per capita GDP could lag peers further, widening inequality and emigration pressures. Optimistic forecasts assume adaptation; brutal realism demands evidence of a break in the post-2000 trend.
Canada must choose: double down on evidence-based reforms – prioritise high-skilled immigration calibrated to infrastructure, unleash supply-side productivity (in housing, energy, and interprovincial trade), and invest in human capital – or accept genteel decline as the G7’s cautionary tale.
For Bangladesh and developing nations, Canada’s story warns that demographic shortcuts and policy inertia yield headlines, not broad-based prosperity. True strength lies in output per person, innovation, and adaptive governance. The next decade will reveal whether Canada rediscovers that truth.
The author is a Development economist, public health professional, and professor at a Canadian University. E-mail: [email protected].
