Canada: Get Used to Weak Growth

Strip away the immigration boom and Canada's economy has nowhere to hide.

Canada’s recent Q4 GDP print looked ugly — a 0.6% contraction, worse than nearly all analysts were pencilling in. Cue the panic. But here’s the thing: the headline was misleading. Inventory drawdowns — businesses burning through stockpiles rather than ordering new product — subtracted a whopping 4.2 percentage points from the number. Strip that out, and the underlying domestic demand actually grew 2.4%. Consumer spending was up. Exports were up. Even government spending was up (no surprise there). Fine. So Q4 wasn’t a catastrophe. Breathe.

Now for the part nobody wants to hear. Canada’s growth will remain weak, and yes, this is true regardless of whether Trump’s tariffs remain in place. Although U.S. protectionism is clearly unhelpful at the margin, it will crush certain sectors. The reality is that roughly 90% of trade remains tariff-free. This is because of CUSMA, the Canada-United States-Mexico Agreement, which is up for review and adjustment this summer. We’ll dissect the importance of CUSMA and why Canada’s government and media continue to downplay its importance at another date.

At issue is the stark reality that real GDP growth expectations are only 1.2% in 2026, down from 2.0% in 2024 and 1.7% in 2025. This is because, without mass immigration, Canada is being forced to confront its productivity emergency.

Fake Growth

Assessing population growth is critical because, for years, outsized immigration propped up real GDP growth. At its core, an economy is its people multiplied by each individual's productivity. The chart below shows where the lion’s share of this growth was concentrated, population growth, which nearly tripled on an annual basis and accounted for 75% of total economic output over the last 10 years.

This made the headline figure in blue look good. More people equals more GDP. Brilliant! Except it isn’t, because if each person isn’t producing more, you haven’t actually created any new wealth — you’ve just got more people splitting the same pie. GDP per capita stagnates, and productivity growth (in red) collapses.

In March of 2024, the Bank of Canada — not known for its inflammatory rhetoric — called this a Productivity Emergency. When central bankers use the word “emergency,” you pay attention.

Fast-forward two years, and predictably and sadly, antimigration sentiment has reached a fever pitch. This finally forced the government to concede that its immigration policies were reckless and put the brakes on population growth. What’s left is productivity growth, and it is on life support.

No Private CAPEX, No Future

Unfortunately, productivity doesn’t grow by accident. It grows when businesses invest in machinery, technology, and equipment — things that make workers more effective. In Canada, private CAPEX is anemic.

Yes, total investment is rising in Canada. But almost all of that rise is new government spending. Public CAPEX is going up, but private CAPEX is going nowhere. And while government investment isn’t worthless, it cannot replace the size and dynamism of private enterprise, allocating capital where it earns returns. Simply put, government builds bridges, and private capital builds industries.

Compared to the U.S., Canada has a significant lack of private investment, with the gap between Canadian and American per-capita private investment widening over the past decade. It means each Canadian worker has less equipment, less technology, and less productive capacity. This decline is what’s called “capital shallowing.” The result? Lower wages. Weaker consumption. Slower growth.

This leaves us with the question of why private capital won’t invest in Canada. Private capital has left Canada because both federal and provincial governments spent a decade making it unwelcome — demonizing critical industries, layering on regulations, and falling behind in tax competitiveness, among other things. Capital goes where it is welcome, and both Canadian and foreign capital have sought other jurisdictions.

The Conclusion Ottawa Won’t Reach

There’s no cavalry coming. The immigration-driven GDP growth has ended. A productivity revival will require a serious renaissance in private investment — and there’s no sign of one.

Canada’s productivity crisis is the woeful conditions for private investment. The fix is the government creating those conditions, not replacing the private sector as capital allocator. That means regulation measured in years, not decades; energy policy grounded in reality; and a tax environment that competes for capital.

The problem is not more government spending, lower interest rates, or killing Trump’s tariffs. Canada has become inhospitable to private capital, and Ottawa has been unable to correctly diagnose this. Misdiagnose the patient, prescribe the wrong medicine, and the patient keeps getting sicker. Canadians should get used to the symptom, weak growth.