As Canada’s economy begins to show signs of slowing down, concerns are rising about the impact of the decelerating population growth on the situation. Recent analysis from BMO has revealed a surprising trend – there seems to be no direct link between real GDP and population growth in the short or medium term. In fact, the data suggests that they move in opposite directions.
The prevailing belief that a growing population spurs economic expansion by increasing aggregate demand is being challenged. The logic follows that if more people consume more goods and services, a decline in population growth could result in an economic slowdown. However, Douglas Porter, BMO’s chief economist, provides a different perspective.
Contrary to common assumptions, Porter argues that the reduction in population growth may not have an immediate negative impact on GDP growth. He dismisses the notion that Canada could face a significant economic downturn if population growth rates were to decline rapidly. Historical data does not support the idea that drastic changes in population growth have a significant influence on near-term GDP trends.
The Relationship Between Canadian Population and Real GDP Growth
Analyzing the 12-month percent change in Canadian real GDP and population growth reveals an unexpected correlation. The data presented by BMO shows that not only is there minimal immediate effect on growth, but the correlation between real GDP and population growth has been negative over time. This inverse relationship challenges conventional wisdom and suggests that increasing population growth does not necessarily lead to higher GDP.
The Myth of Causation: Slow Population Growth Does Not Equate to Lower GDP
Porter emphasizes that while a higher population growth rate may coincide with economic downturns, it does not prove causation. The influx of immigrants during peak business cycles may contribute to the misconception that population growth drives economic decline. However, the 90s exemplified a scenario where despite continued immigration flows, the economy experienced contraction.
In sum, the evidence suggests that slowing population growth in Canada does not automatically translate to a significant slowdown in economic growth. While correlation may exist between population and GDP trends, causation remains elusive. As we navigate the complexities of the economy, it is crucial to challenge long-held assumptions and seek a deeper understanding of the factors influencing our economic landscape.
