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The Canadian economic crisis is a period of pronounced economic turmoil in Canada beginning after the global recession caused by the COVID-19 pandemic. The economic crisis was characterized by increased federal debt and government spending, declining productivity and per-capita GDP, and deteriorating living standards which included significant levels of poverty, inflation, violent crime rates, and high cost of living. The economic crisis evoked significant criticism towards the Justin Trudeau-led government's fiscal policies, and contributed to the resignation of Chrystia Freeland in December 2024 and its subsequent political crisis.

Background

Canada's economic position has shifted dramatically since the 1980s, when it maintained a nearly US$4,000 advantage in per capita GDP over the average of advanced economies. By 2000, the United States had established an US$8,000 lead over Canada. The situation deteriorated further after a 2014-15 shock in oil prices, with Canadian real GDP per capita growing at just 0.4% annually, compared to the advanced economy average of 1.4%.

During 2011-2019, Canada matched U.S. growth rates at 2.2% annually, exceeding other G7 nations. However, in the 2020-2022 period, Canadian growth declined to 1.1%, falling behind the U.S. rate of 1.7%. Despite these, Canada maintained strong headline growth through immigration and population expansion.

Crisis

In 2024, Canada experienced what the Fraser Institute characterized as the country's most severe decline in living standards in four decades, manifested across multiple economic sectors and metrics. Per-capita real GDP continued to decrease through 2024, with Canada recording the lowest growth rate among 50 developed economies since 2019. Particularly notable was the stagnation of inflation-adjusted wages, which showed no growth since 2016. Plans to stabilize the Canadian economy were further complicated by aging demographics, significant technological disruptions including artificial intelligence, and increasing populism exacerbated by economic troubles.

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 Canadian history. By 2024, inflation-adjusted spending per person, excluding debt interest costs, reached $11,856, exceeding the 2007-09 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 taking 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 food, shelter, 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% favoring spending reductions. An Ipsos poll in 2024 reported that only 33% of polled Canadians approved of Trudeau’s performance as president, with particular ire drawn towards insufficient efforts to lower cost of living.

Housing policy

Institutions such as the Fraser Institute, the Institute on Municipal Finance & Governance, and the Modular Building Institute expressed that Canada faces significant structural impediments in addressing issues with housing costs and availability. As of 2020, Canada ranked 37th out of 38 countries in the Organisation for Economic Co-operation and Development (OECD) for municipal approval efficiency, with project approvals taking up to three times longer than in the United States.

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. These issues were exacerbated by poor cooperation between federal, provincial, and local policies and regulations due to a lack of intergovernmental coordination, causing significant delays in housing projects.

Immigration

Investment

Canada's economic difficulties were characterized by insufficient investment levels, with Canadian firms investing notably less than their American counterparts. 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 to address 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 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 and Prince Edward Island recovered to their 2019 per-capita GDP levels, though both remained below the national average.

Productivity

In 2024, Canada faced a significant decline in labor productivity growth, measured by dividing national GDP by total hours worked, which the Bank of Canada's senior deputy governor Carolyn Rodgers described as reaching "emergency levels." The crisis emerged after six consecutive quarters of productivity decline. Between 2019 to 2024, productivity growth stagnated at approximately 0%, marking a historical low point in the country's economic performance relative to productivity growth settling at around 1% of GDP in the early 2000s.

According to the Wilson Center, this decline influenced capital productivity, which measures the efficiency of physical capital usage, and public sector productivity, which evaluates government service delivery efficiency. These factors collectively contributed to slower wage growth, reduced economic expansion, and complications in monetary policy implementation. The Wilson Center claimed that Canada's productivity challenges were exacerbated by various structural factors which included geographic and climate-related challenges due to the country's vast size and harsh climate conditions affecting transportation and infrastructure, widespread provincial regulations creating interprovincial trade barriers, market concentration in key sectors like banking, telecommunications, and energy being dominated by only a few firms, and Canada's predominance of small businesses in its economy (98% of which had fewer than 100 employees).

By 2024, Canada's relative position in global productivity rankings had deteriorated significantly. The International Labor Organization ranked Canada 26th in labor productivity, tied with Spain and Hong Kong, while the United States maintained a stronger position at 13th. The Business Council of British Columbia reported that Canadian economic productivity relative to the United States had declined from 82% in 2000 to 77% by 2020. In the World Bank's ease of doing business index, Canada ranked 23rd, considerably behind the United States at sixth place.

Unemployment

Between mid-2022 and early 2024, Canada's unemployment rate increased by 1.6%, a rise historically associated with recessionary periods in Canada since the 1970s. This increase, though smaller relative to its prior major recessions, was considered significant given its emergence from post-pandemic record lows. Approximately half the unemployment increase stemmed from layoffs, which rose 20% year-over-year by June 2024, while 40% resulted from increased difficulties among students and recent graduates in securing employment.

Since the start of Justin Trudeau's leadership, private sector investment declined by approximately one-third, while government spending expanded to represent nearly half of GDP. This shift was regarded as especially notable relative to Canada's economic position during the 2007-2008 global financial crisis, when the country demonstrated greater resilience than many other developed nations.

United States

While Canada initially demonstrated strong performance during its COVID-19 recovery, partly due to substantial government stimulus approaching CAD$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.

The United States began to reduce its reliance on Canadian petroleum due to increased production from the Permian Basin, causing further shocks to the Canadian economy due to US oil exports accounting for approximately 16% of Canadian export revenue.

Proposed tariffs

In November 2024, United States President-elect Donald Trump announced plans to implement 25% tariffs on Canadian and Mexican imports effective January 20, 2025. The proposed tariffs were contingent on both nations' abilities to prevent illegal immigration and drug trafficking, particularly fentanyl, across their borders with the United States.

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.

Analysis by Oxford Economics estimated that 25% tariffs implemented across all sectors and predicted retaliatory tariffs would cause Canada's GDP to fall by 2.5% by early 2026, increase its inflation rate to 7.2% by mid-2025, and increase its unemployment rate to 7.9% by the end of 2025 due to an estimated 150,000 layoffs.

Impact

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 economic downturn significantly affected Canadian households in several ways. Official statistics indicated a 25% increase in food inflation and a 30% rise in energy costs since the COVID-19 pandemic. Consumer spending power was further impacted by provincial sales taxes ranging from 13% to 15%. The situation led to a 40% increase in bankruptcy filings, while a CIBC report reported that nearly half of Canadians had depleted their emergency savings.

Government employment expanded at approximately four times the rate of private sector growth, with public sector workers comprising one-third of the workforce. These public sector positions commanded a 30% premium in salary and benefits compared to private sector counterparts.

Canada's heavy reliance on the United States, which accounts for 75% of Canadian exports raised concerns about potential further economic impacts from a possible U.S. recession.

Living standards

By Summer 2023, Canada experienced a significant decline in living standards relative to other advanced economies, particularly when measured by per-capita real GDP. Despite strong headline growth figures, the country's standard of living performance notably lagged behind the United States and other advanced economies, with this trend accelerating after the 2014-15 oil price shock and continuing through the post-pandemic period.

Healthcare

A December 2023 University of Toronto-led study published in the Canadian Medical Association Journal (CMAJ) reported that approximately 20% of Canadians lacked access to a family doctor, with many others experiencing irregular access to clinical care, creating what researchers described as a "haves-and-have-nots" situation in healthcare delivery. Primary care funding in Canada represented 5.3% of the total health budget, significantly lower than the 8.1% average between Denmark, Finland, France, Germany, Italy, the Netherlands, New Zealand, Norway, and the United Kingdom. The study noted that the federal government's healthcare funding contribution had declined from its 1970s commitment of 50% to approximately 22% by 2023.

The study specifically noted that Canadian patients, unlike those in countries such as Norway and Finland where citizens were automatically registered with doctors or health centers, suffered extended waits on provincial family doctor waitlists, increasing 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.

Housing crisis

A comprehensive survey released in December 2024 and conducted by Abacus Data in partnership with the Canadian Real Estate Association (CREA) and the Canadian Alliance to End Homelessness (CAEH) documented the widespread impacts of Canada's housing crisis on citizens' financial stability and mental health. The survey found that 43% of Canadians experienced increased financial stress due to housing costs, while 35% reported diminished quality of life. Mental health impacts were significant, with 33% of respondents citing housing-related psychological stress. Housing security emerged as a major concern, with 58% of respondents expressing anxiety about their ability to maintain mortgage or rent payments.

Young Canadians aged 18-44 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 desire for home ownership, 45% viewed this goal as increasingly unattainable.

Inflation

In August 2023, Canada's inflation rate reached four percent, primarily driven by increased gas prices. 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. A comprehensive Food Banks Canada report stated that Canada's poverty was exacerbated by multiple factors, including the COVID-19 pandemic, economic consequences of the Russian invasion of Ukraine, and inflation. A report by Disability Without Poverty and Campaign 2000 gave Canada an "F" regarding the federal government's ability and actions towards reducing poverty among disabled civilians.

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 an Angus Reid survey.

Public sentiment regarding immigrants showed a significant transformation from 2019, when a Gallup study had named Canada the most accepting country for immigrants. By 2024, polls indicated growing concerns about immigration levels, integration, and the government's capacity to provide services for immigrants. The shift coincided with increased reports of hate crimes, which more than doubled between 2019 and 2023.

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 Loblaw, Metro, Empire, Walmart Canada, and Costco. The summit was organized to demand that grocery chains developed a plan to address 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".

In June 2024, the Bank of Canada initiated monetary easing with a 25 basis point rate cut, with projections indicating further cuts would reduce the overnight rate to 4% by year-end. This policy shift aimed to alleviate household financial pressures, particularly for those with adjustable-rate mortgages and credit market debt.

The Trudeau government's 2024 budget included measures aimed at boosting productivity through investments in artificial intelligence and research grants. However, economists argued that more comprehensive reforms were necessary, including a reduction of interprovincial trade barriers, a streamlining of regulations, tax reforms to encourage domestic investment, and an enhancement of innovation in critical industries more akin to American policies.

Immigration

The immigration issue became increasingly prominent in Canadian politics as a result of increased economic challenges, with opposition parties, particularly the Conservative Party under Pierre Poilievre, gaining support through criticism of immigration policies. Polls in 2024 indicated the Conservatives were positioned to win a majority in the next parliamentary election.

The Trudeau government announced substantial reductions to immigration targets in 2024, including a nearly 20% decrease in permanent residency grants and significant restrictions on temporary workers and international students. These changes represented a marked shift from the previous "study, work and stay" approach that had characterized Canadian immigration policy. The government also announced enhanced security measures along the Canada–United States border. The policy shift created uncertainty for hundreds of thousands of migrants already in Canada. International students, who often paid premium tuition rates with expectations of eventual citizenship, faced narrowed paths to permanent residency. The changes particularly affected temporary workers and caregivers who had moved to Canada under previous policy frameworks.

United States tariffs

Following president-elect Donald Trump's proposition to implement 25% tariffs on Canadian imports, Prime Minister Justin Trudeau engaged in direct negotiations with Trump at a November 29 meeting in Florida.

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 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."

See also

• Economic history of Canada
• Economic impact of immigration to Canada
• Economic impact of the COVID-19 pandemic in Canada
• German economic crisis (2022–present)
• List of recessions in Canada

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