CALGARY – A triple threat of falling consumer spending, a potential pullback in residential housing investment and anemic levels of oil and gas expenditures could cut Canada’s economic growth rate in half for the next 15 years, a new Boston Consulting Group report warns.
“We’ve gotten used to sustained growth that is the envy of a lot of other G7 and advanced countries,” Keith Halliday, director of BCG Centre for Canada’s Future, told the Financial Post. “Past performance is no guarantee of future performance and if these downside scenarios materialize, it will mean lower incomes, fewer business opportunities and less government tax revenue for social programs than we would expect.”
In a report released Tuesday, the consultancy said it expects Canada’s GDP growth rate to fall from a historical average of 2.4 per cent between 1995 and 2016 – a level of growth that outpaced all other G7 countries – to an average of just 1.2 per cent between now and 2030.
The decline in GDP growth will be led by a 0.9 per cent fall in consumer spending, another 0.3 percentage point decline in residential housing investment and a 0.1 per cent decline in oil and gas related capital expenditures, the report said.
“If you express these ideas as fractions of a percentage point, it doesn’t seem like very much, but compounded over 20 or 30 years, the impact is quite significant,” the Toronto-based Halliday said.
The report states that oil and gas makes up 18 per cent of the country’s GDP, 12 per cent of its jobs and 27 per cent of its exports, and “no matter how you slice it, the energy and mining sector makes up a significant portion of economic activity in Canada.”
BCG said that after capital expenditure “plummeted after the oil shock” of 2014, the Canadian economy has lost a major driver of future growth.
Data from the Canadian Association of Petroleum Producers shows capital investment in the oil and natural gas industry declined 62 per cent from $81 billion in 2014 to $31 billion in 2016, the last year for which data is available.
The BCG report warns that the 50 per cent fall in Canadian GDP growth would have significant consequences for the country’s economy and income levels.
If the current growth rate of 2.4 per cent growth persists, Canadian GDP per capita would rise to $60,000 by 2030 from $50,000 per person today. However, the expected 1.2 per cent average growth rate would leave Canadians GDP per capita stagnant at $50,000, over the same period given population growth forecasts.
Halliday and BCG managing director Vinay Shandal said they were not calling for a consumer spending bubble or a housing bubble in Canada to pop, but published the report to highlight the implications of what would happen if a slowdown in consumer spending materialized as expected.
Many watchdogs including The Organisation of Economic Co-operation and Development have also warned about rising household debt and inflated home prices in key Canadian cities that could lead to financial shocks.
At least in the short term, Canadian economic growth forecasts continue to trend closer to the historical average. A recent Scotiabank economic forecast pegged Canada’s real GDP growth rate at 3.0 per cent for 2017, 2.2 per cent for 2018 but predicted a fall to 1.5 per cent for 2019.
Similarly, the most recent long-term economic forecast from the Conference Board of Canada released last year expected Canadian economic growth in excess of 2 per cent in the near future but “over the long term, potential output will be limited to annual growth below 2 per cent as the aging of the population puts downward pressure on labour force growth.”
To boost Canadian economic growth long-term, the BCG report suggests two changes. First, Canada should complete “overdue reforms” like the elimination of trade barriers between provinces. Second, it should chase “big ideas” and emerging trends like robotics and artificial intelligence to boost Canada’s economy.