The Economy of Canada
This article offers a broad overview of key factors in Canada’s economy, including its major industries and trading partners, free trade agreements, its most dynamic sectors, global ranking and post-pandemic outlook:
Canada’s economy ranked ninth in the world in 2021 with a nominal GDP of $1.64 trillion, despite a pandemic-related drop in growth rate of -5.3%, according to the World Bank. That puts it above South Korea and Russia and just below Italy. GDP per capita in the pandemic year of 2020 was $43,258, third highest among the top 10 economies. Economists at RBC, Canada’s largest bank, estimate per capita GDP of US $51,713 for 2021.
In the Global Economic Forum’s Global Competitiveness rankings, Canada placed 14th in 2019, with a score of 79.6. The scale ranks 140 countries on a dozen measures including institutions, infrastructure, health, skills, product market, labor market, financial system, market size, and innovation capability.
Canada ranks 9th on the 2021 Index of Economic Freedom, well above the US, scoring particularly high for trade freedom, government integrity and property rights.
Economist Intelligence’s rankings recognize Canada as the world’s 3rd best business environment (out of 82 countries) in its ranking for 2021-25, up from 11th place in 2016-20, and first in the regional rank of G7 countries. The analysis says the rise in Canada's score reflects improvements in areas such as political effectiveness, policies towards private enterprise and competition, financing, and market opportunities.
The World Bank’s Doing Business rankings put Canada at 23rd place overall among 190 countries in terms of “ease of doing business” and in 3rd place for “starting a business.”
Today, about three of every four Canadian jobs are in the services sector, which includes transportation, health care, construction, banking, communications, retail, tourism and government. These together account for an overwhelming 78% share of Canada’s GDP. However, more traditional industries related to Canada’s wealth of land and resources are individually some of the top contributors in terms of GDP. Canada has six strong primary industry sectors: renewable energies; forestry; hydrogen and fuel cells; mines, metals and minerals; fishing; and oil and gas.
Canada’s top three industries by GDP are:
- Real estate, rental & leasing;
- Manufacturing; and
- Mining, quarrying and oil and gas extraction.
- Real estate: This sector only employs about 250,000 people but contributed $256 billion to GDP in 2020. Some of the biggest companies in this field are Real Estate Investment Trusts, such as RioCan REIT, which is best known in Canada for developing huge shopping centers.
- Manufacturing: Although manufacturing plays less of a role in Canada’s economy than it once did, about 1.5 million Canadians are still employed in manufacturing products. This sector contributed $178 billion to Canada’s GDP in 2020. Canada manufactures a vast array of products, from fabricated metal products to machinery, food products, chemicals, petroleum and transportation equipment. Car assembly and auto parts are an important part of the manufacturing sector, in large part because of a closely interwoven auto industry across North America. Most of the big Japanese and American automakers have assembly plants in Canada. Magna International, based near Toronto, is the top auto parts manufacturer. Bombardier, Inc., based in Montreal, started its life making snowmobiles and has grown into a major international corporation developing transportation, aerospace and defense systems. Some other major Canadian manufacturers include ATS Automation Tooling Systems, which makes industrial automated manufacturing systems; Ballard Power Systems Inc., which produces hydrogen fuel cells; and NFI Group Inc., which builds heavy-duty transit buses. Canada’s large pharmaceutical manufacturing industry includes Bausch Health and Advanz Pharma.
- Resources: As a huge country, the second largest in the world by landmass, Canada has a vast amount of untapped natural resources. Resource extraction, from lumber to diamonds, has always played a large role in its economy. Canada is rich in natural gas and has the fourth-largest reserves of oil in the world, most of which is in the western provinces, especially Alberta. (Unfortunately, much of this is locked in so-called oil sands, which requires methods of extraction that have become increasingly controversial in the era of climate change.) Canada is the 7th largest oil producer in the world, and crude petroleum, at an annual $5.77 billion, is its top export. Enbridge, Imperial Oil, Suncor, and Husky, all with bases in Calgary, are some of the top earners in the energy sector. Canada is also one of the leading producers of minerals, including gold, silver, copper and especially nickel, zinc and uranium. Potash is also an important mined product; Potash Corporation of Saskatchewan is Canada’s 10th largest company in terms of profit. Some of the world’s largest international mining companies are based in Canada, including Barrick Gold and Tech Resources. Mining, quarrying and oil and gas together employ about 190,000 people and produce $144 billion in GDP in 2020.
- Finance and insurance: Canada’s financial sector is dominated by the “Big Five” banks (RBC, Toronto-Dominion, Scotiabank, Bank of Montreal and CIBC); they and Canada’s top insurer, Manulife, and Brookfield Asset Management, a top alternative investment firm, all rank between 41st and 190th on the Forbes 2000 list. The finance and insurance industries contribute $143 billion to Canada’s GDP and employ some 730,000 people.
- Agriculture and food: Canada is one of the world’s biggest food exporters, largely because of the prairie region’s seemingly endless fields of wheat and other grains. Canada also exports meat and seafood, especially to Asian markets. Fruit and vegetable farming, pork and poultry production, dairy production, and vineyards/wine are regionally important, especially in Ontario, British Columbia and Nova Scotia. Fishing and fish farming is an important traditional part of the economy on both coasts, and cattle ranching is especially strong in Alberta. Farming employs only about 2% of the Canadian population, but 1 in 8 Canadian jobs is related in some way to the food system and food processing. Food accounts for over $80 billion of GDP and more than $40 billion in exports.
- Retail: Retail employs about 12% of Canada’s workforce. In addition to traditional retailers, such as George Weston Ltd. and Metro (two of Canada’s largest food retail companies), online retail is growing rapidly in Canada. Shopify, based in Ottawa, is the largest publicly traded company in Canada by market capitalization and claims to have more than 1.7 million businesses in 175 countries using its e-commerce platform, with total revenue for 2020 of more than US $2.9 billion.
- Construction: Construction industries across Canada contributed $137 billion to GDP and employed 960,000 people in 2020, relying strongly on immigrants to supply many of the skilled trades necessary in this booming sector of the economy. This was one area of the economy that actually thrived during the pandemic, especially as many middle-class homeowners forced to work from home decided to renovate and the shortage of skilled tradespeople helped to force the cost of construction higher.
- Educational services: As one of the best-educated countries in the world, Canada has many top-ranked public universities and compensates teachers at the elementary and secondary levels well. Education employed 1.3 million people in 2020 and contributed $99 billion in GDP.
- Public administration: This sector employed 1.1 million people in 2020, the majority of that at the local government level, and contributed $130 billion to GDP.
- Professional, scientific and technical services: Employing 950,000 people, this broad sector accounted for $116 billion of GDP in 2020.
As is true in many highly developed economies, the services sector is playing an increasingly huge role in the Canadian economy. The proportion of the economy stemming from services grew from 65% in 2004 to 69% in 2013, to 78% today.
Some fields that have grown exponentially in recent years are financial services and telecommunications, IT services, aerospace engineering, and tourism.
Canada’s IT industry has become known for its hundreds of innovative tech startups, and the increase in remote work over the past two years has particularly brought software development into the spotlight. Canada has created research hubs such as the MaRS Discovery District in Toronto, which brings together startups in medicine, cleantech, fintech and enterprise, to advance Canada’s leadership in technological research and innovation.
Prior to the pandemic disruption, tourism was rapidly growing in its share of the economy. According to RBC, one of every 10 jobs in Canada was related to tourism, and it was the focus of 225,000 small and medium-sized businesses. IBISWorld predicts that in the recovery from COVID-19 over the next five years, scheduled air transportation, hotels, tour operators, campgrounds, amusement parks, concert event promotion and ski resorts — all related to tourism — will be among the ten biggest growth industries in Canada.
Film and television production is also a growth industry, thanks in part to the advent of streaming services and their insatiable demand for content. This has earned Canada the designation of “Hollywood North,” with Vancouver and Toronto often standing in for US cities when American film studios move production to Canada.
Canada has 15 preferential trade agreements in force and has signed on to the Trans-Pacific Partnership. The trade-weighted average tariff rate is 3.1 percent, and 459 non tariff measures are in effect. Canada’s top three trading partners are the United States, China and the United Kingdom, followed by Japan and Mexico.
It should come as no surprise that Canada’s top trading partner is the country with which it shares the world’s longest undefended border, both to the south and to the north (with Alaska). Each day, some $1 billion worth of trade crosses that 8,891-kilometer line. While Canada’s economy is far smaller, its importance to the US is underlined by the fact that the US trades more with Canada than with all of Latin America combined. Canada is the United States’ largest single goods export market. And as much as 75% of Canada’s exports go to the US.
This relationship is governed by the United States-Mexico-Canada Agreement, which came into force in 2020 and is essentially an update of the decades-old North American Free Trade Agreement. Its key provisions, which involve trade with Mexico as well, cover areas such as automobiles, dairy and agriculture, and protections for intellectual property and labour.
While industries on both side of the international line, especially those in Canada and the US border states, are keen to see free trade continue, this relationship is always in tension with political aspirations, particularly under former US president Donald Trump’s “America first” policy and the Joe Biden administration’s pledges to enforce “buy American” policies in its infrastructure and climate change plans — for instance, moves to require more US-built content in electric cars. At various times, attempts to raise tariffs on imports such as lumber and aluminum have frustrated Canadian politicians, while Canada’s protectionism when it comes to things such as dairy products have led to protests from the United States.
Canada’s top export to the US is petroleum products (CAD $53.7 billion in 2020), followed by machinery and plastics. Some $56.3 billion in services were exported that same year, especially in the travel, transport, and telecommunications, computer, and information services sectors. Food products travel both ways across the border, with Canada being the US’s top import source of food; red meats, snack foods, vegetable oils and processed and fresh fruits and vegetables are among Canada’s exports.
Canada ran a small surplus in the balance of trade in 2021 of $610 million.
Like many Western nations, Canada faces a large balance of trade deficit with China, upon which it relies for a wide range of consumer goods, from electronics to furniture to clothing. Total Canadian exports of goods to China in 2019 amounted to $23.6 billion, while total goods imported were $38.7 billion. Total 2019 exports of services were $6.1 billion, while total services imported amounted to $2.5 billion, resulting in a services trade surplus with China, according to Statistics Canada.
Ores, mineral fuels, vehicles, wood and wood pulp, medical equipment, fertilizer and various food products, including vegetable oils, meat and fish, were among the top exports to China. Canada’s top import from China, representing about a quarter of all imports, was computers and other electrical equipment.
Canada has had exploratory discussions with China about a free trade agreement and has signed an agreement on foreign investment promotion and protection.
Canada’s deep historical ties to Britain underlie an ongoing economic relationship with the UK.
The Canada-United Kingdom Trade Continuity Agreement (Canada-UK TCA) came into effect on April 1, 2021, following the UK's exit from the European Union. This agreement preserves the main benefits the UK enjoyed under Canada's trade agreements with the EU through the Canada-European Union Comprehensive Economic and Trade Agreement.
Canada had a balance of trade surplus with the UK in 2020. Total exports of goods were $14.9 billion versus imports of $5.85 billion, with the top goods exported including precious stones, mineral fuels, machinery, ores, aircraft and wood products. Total exports of services amounted to $1.4 billion, while total services imported were $1.8 billion, resulting in a slight services trade deficit, according to Statistics Canada.
According to RBC, the Canadian economy rebounded considerably in 2021, helped by a hike in global oil prices, as petroleum products are Canada’s single biggest export. The latest figures by the OECD suggest that Canada’s economy grew by 4.8% in 2021, lower than the global average of 5.3%.
According to Forbes, targeted government support programs provided a boost to household incomes and allowed businesses to recover from the pandemic, lending some resilience and stability to the economy. But inflation, return to partial lockdowns because of the Omicron variant, and uneven recovery of some sectors are presenting ongoing challenges.
Strong uptake of COVID vaccinations by Canadians and the subsequent easing of pandemic measures helped increase internal demand for many goods in 2021. But global supply chain issues amid that rising demand helped to drive goods inflation to 4.4% by the end of the year, leading to expectations that the Bank of Canada would hike historically low interest rates by small increments several times over 2022 to try to slow inflation to its target rate of 2%. Supply chain issues, labour shortages, high demand for certain goods, and increase in commodity and energy prices will probably keep inflation at high levels for some time.
The International Monetary Fund expects Canada’s economy to grow faster than it had been prior to the pandemic, with a forecasted growth of 4.9% in 2022 and 2.6% in 2023. However, the country was hit hard by the Omicron variant in January, leading to uncertainty about what the year would bring.
Unemployment, which was at historic lows in 2019, rose during the pandemic but then declined, dropping to 6% by the end of 2021, according to a report by Deloitte.
At the same time, the pandemic led to many shifts in the labor force and severe shortages in some sectors, especially those that tend to pay poorly, such as restaurant workers. The overall job vacancy rate rose to 6% by September 2021, considerably higher than before the pandemic. In accommodation and food services, the job vacancy rate was 14.4%. In contrast, better-paying jobs that allow people to work from home — including professional, scientific and technical fields, finance, real estate and educational services, among others — have flourished since the start of the pandemic.
The IMF predicts that unemployment in Canada will decrease gradually to 5.7% in 2022 and 4.9% in 2023.
Despite the many jobs lost during the pandemic, government support programs such as the Canada Emergency Response Benefit, which went directly to low-income earners who lost their jobs, resulted in a record growth in disposable income of 8.3% in 2020, according to Deloitte. This, coupled with rising middle-class incomes and an inability to spend on many services, led to a huge buildup of household savings — $206 billion in 2020, compared with an average of just $26 billion in the previous five years. That amount is expected to decline as people increase their spending after two years of pent-up demand.
Retail, especially e-commerce, is definitely a bright spot in Canada’s economy as it emerges from the pandemic. As of September 2021, retail sales were 9% above pre-pandemic level. Consumers have been splurging in particular on housing-related goods, including building materials, home furnishings and garden equipment. Retail sales are expected to slow to more normal levels when people are able to start spending again on services, such as dining out, live entertainment and travel.
Meantime, the extremely hot housing market — which grew by 14% and has seen home prices soaring across the country in the midst of the pandemic, making it extremely difficult for lower-income Canadians to buy or rent a suitable home — is expected to cool a little as interest rates rise.
Canada’s exports were dampened by the pandemic but are expected to recover somewhat in 2022, if Omicron and supply chain issues ease, with auto and energy exports at the top of the list. High commodity prices will benefit many Canadian exporters if they can find ways to expedite shipping.
The Bank of Canada’s Business Outlook survey in September indicated that Canadian businesses are optimistic about the future, with the indicator reaching an all-time high. As a result, many are planning more capital spending during the next couple of years. Investment is especially high in the utilities sector (up more than 18%), thanks in part to some large hydroelectric projects.
That’s part of one sector that can expect major growth in coming years: clean energy. A report by Clean Energy Canada and Navius Research projects that this sector will grow by almost 50% and employ 639,200 people under the Canadian government's new climate plan by 2030. A large part of that growth will be in developing clean transportation, particularly electric vehicle (EV) technology, which will help the country take advantage of strong uptake of electric vehicles by its trading partners in Europe and the US.
Finally, federal government investments will continue to provide stimulus to an economy badly bruised by the pandemic and the effects of climate change, which have included devastating fires and floods and unprecedented threats to its Arctic regions. In its fall update, the Canadian government pledged $71 billion in new spending over the next seven years, some $8 billion of that for ongoing COVID relief to businesses and individuals, plus $5 billion for rebuilding flood-ravaged areas of British Columbia, and more for Indigenous communities and to expedite processing of immigration applications.
Immigration has been dampened by pandemic health restrictions over the past two years, but with an aging population, the country is increasingly looking to newcomers to fill skilled jobs in its reinvigorated economy. It expects to welcome 411,000 new immigrants in 2022 and 421,000 in 2023.
If you want to be among those newcomers to Canada, contact us, and our team of professionals will help you navigate in the process of immigrating to Canada. We will review your background and provide you with a realistic assessment of your chances of success. If you decide to pursue one or more immigration programs, we can manage your application and all related tasks.
If you are unsure about your likelihood of success, contact us for a free evaluation. If you still have any other questions that are not addressed in this article, please contact us and we will be happy to help.