By Veeno Dewan
Canada has a fundamental economic growth problem. Something that has become more exacerbated since the global pandemic. Our economy is now smaller than it was in 2019 when adjusted for inflation and population growth. It has been almost stagnant for the last decade, according to the World Organisation for Economic Co-operation and Development.
The problems are not all caused by poor governance and economic fiscal policy. Globalization, the COVID-19 crisis, and geopolitical market forces are also part of the equation. Manufacturing is half what it was since the 1980s. Automation and new technology have also significantly impacted the labor market. At the same time, traditional resource industries such as mining and forestry have experienced contraction. Oil and gas have also undergone cycles of boom and bust, necessitating increased investment for future growth, according to a survey by Leger Marketing Inc. in November 2024. More than half of the people surveyed believed Canada was in an economic recession.
Key issues that hinder the Canadian economy:
Canada’s productivity, as measured by Gross Domestic Product (GDP), has been lagging behind that of other developed nations. Statistics Canada reported that in June 2025, Canada’s real Gross Domestic Product edged down 0.1 percent in April 2025, and its advance estimate for May 2025 indicated a similar decline. Negative GDP growth is expected in the second and third quarters of 2025, according to the Toronto Dominion Bank’s Economics division.
Canada’s economy is heavily reliant on trade with the United States, with a significant percentage of exports destined for the US market. The Bank of Canada estimates that investment in the Canadian economy could decline by 12 percent and that exports will fall by 8.5 percent if U.S. President Donald Trump’s tariffs remain in place for a full year. The bank predicts that Canadian growth will decline by three percent over the next two years.
The International Monetary Fund has estimated that Canada’s interprovincial internal trade barriers cost the equivalent of a 20% average tariff between provinces. By comparison, the effective tariff rate applied to international imports in Canada is less than 1%.
What are the possible solutions to Canada’s economic woes?
The newly minted Canadian Prime Minister Mark Carney has an enormous task of rebuilding the Canadian economy after years of stagnation and now faces an escalating trade and tariff war with the United States. Carney has vowed to fight any imposed tariffs with reciprocal Canadian tariffs on US goods.
In June 2025, the Federal government passed Bill C-5, allowing the creation of “special economic zones” where provincial laws, including environmental and labor regulations, can be suspended for approved projects deemed necessary for Canadian economic development. Several provinces have signed memoranda of understanding (MOUs) to enhance the movement of goods, services, investment, and labor. This will lay the groundwork for unified economic infrastructure projects. Including oil and gas pipelines, nuclear development, energy grids, and transportation – all with a focus on Canadian energy independence and Arctic sovereignty.
In terms of the labor market, government statistics indicate that the bulk of population and workforce growth in the future is expected to come mainly from immigration. Canada needs a more effective system to match education and skills with job opportunities.
Canada’s tax competitiveness needs to be improved through broader reforms that reduce complexity and the cost of tax compliance. This could help attract more foreign investment, particularly from foreign companies. Prime Minister Carney is also forging links with various trading partners, particularly in Europe and Asia, to circumvent dependence on US trade and the threat of tariffs.
Conclusion – Good news.
The good news is that Canada has a strong infrastructure overall, ranking at the top of the G7 in World Bank rankings. Transportation and warehousing are among the few industries where Canadian business investment accounts for a larger share of industry GDP than in the US. Agriculture has also been a standout performer in Canada, with the adoption of new technologies and practices yielding increasing output.
Christopher Sands, director of the Wilson Center’s Canada Institute Think Tank, notes in a recent CBC interview that “the silver lining” of the trade conflict with the US is that Canada will now be forced to seriously consider reforming its economic policies, which include a restrictive regulatory environment and lagging investment.”
The disruption in the Canada-US trade relationship and the “elbows up” attitude have encouraged Canadians to address longstanding economic vulnerabilities. The hope is that we will be in a much better position a few years from now as we face greater economic challenges than ever before.
Sources: Government of Canada, Statistics Canada, Organisation for Economic Co-operation and Development, World Monetary Fund, Bank of Canada, The Fraser Institute, Royal Bank of Canada, Toronto Dominion Economics, Wilson’s Sands Canada Institute. Ledger Marketing Polls, Business Council of Canada.
