The Economy of Canada: An Explainer
Intro to the Canadian Economy
Canada’s economy is highly developed and one of the largest in the world. In 2020, the country’s annual gross domestic product (GDP) was $1.64 trillion in current USD, according to the latest available World Bank data. That made Canada the world’s ninth-largest economy. Canada’s economy is highly dependent on international trade with exports and imports of goods and services each comprising about one third of GDP. The country’s three largest trade partners are the U.S., China, and the U.K. Its three largest industries, measured by their contributions to GDP, are: real estate and rental and leasing; manufacturing; and mining, quarrying, and oil and gas extraction. Canada is home to e-commerce company Shopify Inc. (SHOP.TO, SHOP), major banks such as the Royal Bank of Canada (RY.TO, RY), and energy transportation and distribution company Enbridge Inc. (ENB.TO, ENB). The CAD/USD exchange rate used in this story is 0.79611 as of July 21, 2021. Some of the statistics below may vary between sources because each source uses its own methodology for defining and calculating statistics.
The COVID-19 pandemic caused Canada’s economy to pull back sharply in the first half of 2020 before rebounding in the latter half of the year. In the second quarter of 2020, real GDP fell 11.3% quarter-over-quarter (Q/Q), but rose 9.1% Q/Q in the third quarter and then 2.2% Q/Q in the fourth quarter of 2020, offsetting the steep decline earlier in the year. Real GDP was up 0.3% in the first quarter of 2021 compared to the first quarter of 2020. The increase in first quarter GDP was fueled in part by low mortgage rates, rising housing demand, and government transfers to households and businesses.
The Canadian Economy by the Numbers
- Canadian 2020 GDP: $1.64 trillion (World Ranking: #9).
- Canadian 2020 GDP per Capita: $53,796.25 (World Ranking: #29).
- Canadian 2020 GDP Growth: -6.428%.
- Canadian 2020 Consumer Price Index (CPI) Inflation: 0.7%.
- Canada’s Largest Industry by GDP (2020): $1.539 billion (business sector industries).
- Size of Canada’s Business sector industries by Dollar Value (2020; based on seasonally adjusted 2012 chained dollars): CA$1.539 billion ($1.225 billion).
- Canada’s December 2020 Balance of Trade in Goods and Services: a deficit of CA$36.2 billion ($28.8 billion) because imports were greater than exports.
- Canada’s Largest Export Destination in May 2021: the U.S. (63.5% of goods exports).
- Canada’s Largest Import Origin in 2019: the U.S. (50.6% of goods imports).
- Canada’s Largest Goods Export by $ Value in 2021: crude petroleum CA$7.31 billion ($5.82).
- Canada’s Largest Goods Import by $ Value in 2021: cars CA$3.13 billion ($2.49).
The above data reflect the state of Canada’s economy prior to the global economic shock resulting from the COVID-19 pandemic.
Canada’s Top Industries: Business, Service-Producing, and Goods Producing
Canada’s three largest industries comprise nearly a third of the country’s total GDP. Those three industries and their contributions to GDP in 2020 were: business sector, which accounted for CA$1.539 billion ($1.225 billion) of GDP; service-producing, CA$1.329 billion ($1.058 billion), of GDP; and goods producing industries, CA$.545 billion ($.433 billion), of GDP. Together, they employ 15.96 million people, according to Statistics Canada.
Real Estate and Rental and Leasing
Canada’s real estate and rental and leasing industry is comprised of establishments engaged in the following types of activities: real estate management; selling, renting, or buying real estate for others; appraising real estate; rental and leasing of tangible assets such as automotive equipment; and leasing of non-financial intangible assets such as copyrighted works. GDP for the industry, which employs about 2.51 million people, rose 3.72% in 2021, according to the Government of Canada.
Some of the biggest companies in the industry are real estate investment trusts (REITs), including Canadian Apartment Properties REIT (CAR.UN), RioCan REIT (REI.UN), and Allied Properties REIT (AP.UN).
Canada’s manufacturing industry is engaged in the physical or chemical transformation of materials or substances into new products. These products may either be finished goods for consumption or semi-finished goods to be used in manufacturing processes. Canada’s industries manufacture food, chemicals, petroleum, fabricated metal products, machinery, transportation equipment, and other products. GDP for the industry, which employs approximately 1.4 million people, shrank 0.8% in May 2021, according to the Government of Canada.
Some major Canadian manufacturers include: ATS Automation Tooling Systems (ATA.TO), a custom engineer and manufacturer of industrial automated manufacturing systems; Ballard Power Systems Inc. (BLDP.TO, BLDP), a manufacturer of hydrogen fuel cells; and NFI Group Inc. (NFI.TO), a manufacturer of heavy-duty transit buses.
Mining, Quarrying, and Oil and Gas Extraction
Canada’s mining, quarrying, and oil and gas extraction industry is primarily engaged in the extraction of naturally occurring minerals. The industry is dominated by oil and gas extraction, but other types of mining activity include mining coal and a range of metals, including gold, silver, copper, nickel, and more. Stone, sand, gravel, clay, and ceramic mining and quarrying are also part of the industry, as well as mining for potash. GDP for the industry, which employs approximately 0.18 million people, grew 0.3% in May 2021, according to the Government of Canada.
Some of Canada’s biggest mining companies include: Nutrien Ltd. (NTR.TO, NTR), a producer and distributor of potash, nitrogen, and phosphate products; Barrick Gold Corp. (ABX.TO, GOLD), a gold mining company; and Teck Resources Ltd. (TECK.B.TO, TECK), a natural resource company that mines for zinc, copper, molybdenum, gold, and metallurgical coal.
Below is a closer look at Canada’s 10 biggest industries by contribution to the economy. Together, they are an important reflection of Canada’s economy because they contribute about three quarters of the nation’s GDP.
|Major Canadian Industries (2019)|
|Industry Name||Contribution to GDP in 2019 (%)||Contribution to GDP in 2019 ($B)||Number of People Employed (M)|
|Real Estate, Rental, and Leasing||12.7||203.5||0.3|
|Mining, Quarrying, and Oil and Gas Extraction||7.9||126.4||0.2|
|Health Care and Social Assistance||7.0||112.0||2.0|
|Finance and Insurance||6.9||110.2||0.7|
|Professional, Scientific, and Technical Services||6.0||95.9||1.0|
|Wholesale Trade||5.2||82.5||Employment figure not represented in data source.|
Source: Statistics Canada (industry GDP and employment data); industry GDP contributions based on seasonally adjusted chained 2012 Canadian dollars; conversion to U.S. dollars based on author’s calculations using CAD/USD exchange rate of 0.80638 as of June 29, 2021.
Canada’s Top Trading Partners
In May 2021, Canada’s trade balance for goods and services was CA$1.8 billion deficit ($1.41). Total imports were CA$50.9 billion ($40.13 billion). Inventories, gross fixed capital formation, and exports each comprise roughly a third, respectively, of Canada’s GDP, according to the Government of Canada. The country’s top three trading partners in 2020, by total volume of exports and imports of goods and services, were the U.S., China, and the U.K.
#1 Trading Partner: the U.S.
In July 2021, Canada ran an overall surplus of CA$0.78 billion ($0.61) in its balance of trade (BOT). Total exports of goods amounted to CA$53.7 billion ($42.32). Total exports of services were $56.3 billion while services imports amounted to CA$53 billion ($41.77). In May 2021, Canada’s top goods export to the U.S. was crude petroleum; its top goods import from the U.S. was cars, according to the Observatory of Economic Complexity.
Canada’s trade relationship with the U.S., as well as Mexico, is governed by the United States-Mexico-Canada Agreement (USMCA), which came into force on July 1, 2020. The agreement includes key provisions in areas such as dairy and agriculture, automobiles, intellectual property, and labor. USMCA replaced the North American Free Trade Agreement (NAFTA), the trade agreement that had governed trade relations between the three countries since 1994.
# 2 Trading Partner: China
Canada ran a large BOT deficit with China in 2020. Total exports of goods amounted to CA$31.6 billion ($23.6) while total goods imports were CA$51.9 billion ($38.7), resulting in a deficit in Canada’s trade of goods with China. Total 2019 exports of services were $6.1 billion while total services imports amounted to $2.5 billion, resulting in a services trade surplus with China, according to Statistics Canada. Canada’s top goods export to China in 2020 was coal. Its top goods import from China was computers.
#3 Trading Partner: the U.K.
Canada ran a BOT surplus with the U.K. in 2020. Total exports of goods were $14.9 billion while total goods imports were $5.85 billion, resulting in a surplus in Canada’s trade of goods with the U.K. Total exports of services amounted to $1.4 billion while total services imports were $1.8 billion, resulting in a slight services trade deficit with the U.K., according to Statistics Canada. Canada’s top goods export to the U.K. in 2020 was pearls, precious stones, metals, and coins. Its top goods import from the U.K. was machinery, nuclear reactors, and boilers.
The Canada-United Kingdom Trade Continuity Agreement (Canada-UK TCA) recently came into effect on April 1, 2021. Following Brexit, the U.K.’s exit from the European Union (EU), the Canada-UK TCA preserves the main benefits of Canada’s trade agreements with the EU as outlined under the Canada-European Union Comprehensive Economic and Trade Agreement (CETA).