Many have noted Canada’s underperformance in GDP per capita relative to other industrialized countries over the past decade; however, little consideration and effort are put into analyzing the source of this mediocre performance. Without this understanding, it is difficult to provide solutions to this important issue. In this first part of our series on the “Lost Decade(s)”, we investigate the drivers of the poor performance seen in recent years.

The Canadian economy avoided falling into a recession in 2024, despite one of the sharpest increases in interest rates in Canadian history and the most restrictive monetary policy in over a decade. However, despite avoiding a recession, individual households and businesses do not feel positive about the state of the economy, with confidence measures below their pre-pandemic level.

Housing affordability is now a national crisis. House prices have climbed well above income for over a decade. As we have shown previously, historically low interest rates before the pandemic offset some of the impact of higher prices and prevented a drastic decline in affordability.

Western alienation has a long history in Alberta, from the lack of lending to the province's farmers in the 1930s, which gave birth to Alberta's credit union system, to the National Energy Program in 1980, to what is currently viewed as an overly restrictive regulatory framework that stymies the oil and gas industry.

Despite oil production and revenues reaching record levels, Alberta is far from experiencing an economic boom similar to what we saw in the mid-2010s and the 2000s. This is because the nature of the oil industry has changed, likely forever, and its impact on the economy has weakened.

Transforming Canada into an "energy superpower" has been the federal government's catchphrase since it was elected last year. This ambition is also set out in the memorandum of understanding (MoU) signed with the government of Alberta. These developments have brought some hope that we will see a new wave of capital investment in the sector, boosting the economies of Canada and Alberta. However, many hurdles need to be passed before we start to see capital being committed and shovels in the ground.

An increase in oil prices has generally been viewed as positive for the Canadian economy because of the improvement in the terms of trade it entails. As such, increased export revenues are usually a positive tailwind for the economy, leading to stronger growth, higher incomes, and currency appreciation.

In the early 1970s, Canada was positioned as a leader in labour productivity among its peers, ranking sixth highest in output per hour worked among 23 OECD countries. This commendable standing, however, began to wane significantly over time. Particularly from 1970 to 1996, Canada saw a steady decline in its productivity rank, eventually stabilizing to a position fluctuating between 18th and 20th place in the mid-1990s, a stark contrast to its earlier standing.