The global economy grew at “unprecedented speed” over the past 50 years, but this “growth bonanza” is set to come to an end as population growth slows, says a new study.
And Canada is projected to see more pain as a result of this than just about any other country, thanks to the country's long-running reliance on population growth as an economic driver.
GDP growth per person in Canada will be 57 per cent slower in the next 50 years than it was, on average, in the past 50 years, according to the report from McKinsey & Company.
Only Saudi Arabia and Mexico are projected to see their economic potential shrink more. The U.S., by comparison, is expected to see its economic growth rate shrink by only 28 per cent over the next half century.
As a result, Canada’s per capita GDP growth is expected to clock in at just 0.8 per cent per year over the next half century, compared to 1.9 per cent per year over the past 50 years.
This suggests that future generations of Canadians will see their income and wealth grow more slowly than their predecessors, unless Canada’s economy can compensate in other ways for the slowdown.
The population of the world was 3.2 billion 50 years ago, and grew 125 per cent to 7.2 billion by last year. It’s expected to grow to 10.1 billion by 2064, a much smaller, 40-per-cent increase.
The global economy expanded six-fold over the past 50 years, with per capita income growing three-fold, thanks in equal parts to rapid population growth and productivity gains. But the global economy is projected to grow only three-fold in the next 50 years, making it “more difficult to meet social and debt obligations,” the McKinsey report states.
Canada has arguably been more dependent than most countries on population growth to power its economy.
For example, one explanation for why Canada’s housing market didn’t bust out when the U.S.’s did is that Canada is seeing much stronger population growth in the age group that buys first homes than the U.S. has seen in recent years.
(The flipside of this is that slow population growth could dampen the housing market, which is what the Bank of Montreal expects to happen when the home-buying-age population starts shrinking in 2018.)
The McKinsey report suggests the days of relying on a booming global population to drive wealth are coming to an end. It estimates that, to compensate for slower growth in the size of the workforce, productivity growth would have to be 80 per cent faster than it has been to keep GDP running at the pace it has been in the past half century.
That’s not impossible, the McKinsey report argues. In fact, three-quarters of the increases in productivity growth we need to make to keep up economic growth simply consists of adopting “best practices” -- using the most efficient existing methods of doing things.
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