Canada Economic Structure

March 11, 2010Canadaby EconomyWatch Content

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The Canadian economy closely resembles that of its neighbour to the south, the US. Besides having similar patterns of production and living standards, Canada also adopts a market oriented economic system combines private enterprise with government regulation.

Since World War II, Canada has experienced massive growth in its manufacturing, mining and services, propelling the economy from being a largely agrarian one to becoming one of the most highly industrialised and urbanised economies in the world.

Today, Canada is the 9th largest economy in the world based on GDP (current prices, US dollars) and the 14th largest based on GDP (PPP). As a member of the OECD and the G-8, Canada also ranks among the most advanced and influential economies in the world.

However unlike most of its peers, Canada is considered to be unusual for an advanced economy as its primary sector, namely the logging and oil industries, is one of the most important elements to the economy. Canada’s manufacturing industry is also high important, particularly the automobile industry, with low labour costs and a comprehensive healthcare and social security system attracting major automobile companies from the US and Japan to set up manufacturing facilities in Canada.

The Canadian economy also differs slightly from its neighbour, the US, where by the former is a net exporter of commodities while the latter is a net importer. The Canadian banking industry is also rather conservative in comparison to that of the US.

Despite this, Canada’s economic progress is interlinked with the US economy. Following the signing of the 1989 US-Canada Free Trade Agreement (FTA) and the 1994 North American Free Trade Agreement (NAFTA), there has been an increase in trade and economic integration with the US. The US is also Canada’s largest trading partner, besides being its largest foreign investor through investments in mining, smelting, petroleum, chemical and machinery segments. As such, Canadian economic policies have often been adjusted according to that of the US. Historically, even a minor change in the US interest rates has had economic repercussions in Canada.

Canada’s Economic Geography

Canada is the second largest nation in the world in terms of land area – behind Russia and ahead of the US. Furthermore, the country contains a rich abundance of mineral, forest and water-based resources such as iron ore, nickel, zinc, copper, gold, lead, rare earth elements, molybdenum, potash, diamonds, silver, fish, timber, wildlife, coal, petroleum, natural gas and hydropower.

Historically, fishing and forestry were once major industries in Canada. Although these industries still retain a level of importance in Canada’ economy, mineral and energy resources have become the leading source of income for the nation. Canada is the world leader in value of mineral exports and unlike most advanced economies; Canada is a net exporter of energy. In 2010, Canada exported 2.151 million barrels of oil per day and 94.67 billion cubic metres of natural gas, making it the 10th largest exporter of oil and the 3rd largest exporter of natural gas in the world. In addition, Canada also has 2nd largest proven oil reserves and the 21st largest proven natural gas reserves in the world.

The shift in the importance of natural resources have also led to an economic imbalance between different regions in Canada. In recent years, Western Canada has seen rapid economic growth due to its abundance of oil. Central Canada on the other hand, is home to half of the population and contains much of its services and manufacturing industries. However, the four Atlantic Provinces of Canada, New Brunswick, Prince Edward Island, Nova Scotia and Newfoundland and Labrador have seen a major decline in its economic activity since the 19th century due to its primary focus in the fishing industry. Recent years have seen some significant moves towards diversification, with Newfoundland and Labrador leading the way with new oil and gas exploration.

The majority of Canada’s natural resources and exports are directed towards its neighbour, the US. Accordingly, a large percentage of Canadian industries are located near the US-Canada border. The US is also Canada's largest source of foreign investment and the most popular destination for Canadian foreign investments. US investments are primarily directed at Canada's mining and smelting industries, petroleum, chemicals, the manufacture of machinery and transportation equipment, and finance, while Canadian investment in the United States is concentrated in manufacturing, wholesale trade, real estate, petroleum, finance, and insurance and other services.

Canada’s Population and Labour Force

Canada’s population for 2010 was 34.059 million. In the same year, Canada’s labour force comprised of 18.59 million people.

The Canadian labour force is split among numerous industries. According to the latest available data from 2006, 2 percent worked in agriculture, 13 percent in manufacturing, 6 percent in construction, 76 percent in services and a further 3 percent in other industries.

Despite having the 9th largest labour force participation rate in the world, Canada faces the problem of an aging labour force. Between 1991 and 2001, the average age of the Canadian labour force had grown from 37.1 to 39 years old.

In 2010, 15.9 percent of the population was above the age of sixty five, 68.5 percent were between the ages of fifteen and sixty four while 15.7 percents were aged fourteen and below. In 2011, Canada also had an extremely low population growth rate of 0.794 percent.

As such, Canada has since turned to immigration to compensate for its lack of skilled workers combined with an aging labour force. According to census data, Canada immigrant during the 1990s composed of almost 70 percent of labour force growth in the last decade.

In the aftermath of the 2008 global financial crisis, unemployment rates have spiked in Canada. Despite strong economic growth in the first half of 2010, the pace of job creation slowed considerably in the second half of the year. In the first six months of 2010, employment growth averaged 51,400 per month. On the other hand, the July to November period only saw employment gains averaging 7,620 per month.

As such, unemployment rates have remained relatively high in spite of the economic recovery. In 2010, the unemployment rate in Canada was 7.992 percent. Although this was an improvement from 2009’s unemployment rate of 8.292 percent, it is considerably higher than pre-financial crisis levels where unemployment rates in 2007 for example was 6.058 percent.

Canada’s Industry Sectors

Canada’s GDP composition for 2010 was made out of agriculture (2 percent), industry (20 percent) and services (78 percent).

Despite only contributing to 2 percent of Canada’ GDP, Canadian agricultural products are among the most widely sought of in the world. Canada is one of the world's largest suppliers of agricultural products – they lead the world in lentils, linseed, mustard seed and peas and among the top ten producers of barley, blueberries, cranberries, mixed grain, oats, rapeseed, pork, wheat, turkey, raspberries, rye, soybeans, beef, mushrooms, chick-peas and maize. 

Although the Canadian agriculture industry has benefited from government subsidies and supports, Canada has been an advocate of reducing market subsidies from the WTO. In 2000, Canada used only US$848.2 million of its US$4.3 billion subsidy allowance granted by the WTO.

Industry is an equally important part of Canada’s economy and society. After rising for several consecutive years, Canada’s industrial growth rate, which measures the annual percentage increase in the country’s manufacturing, mining and construction segments, declined by 8 percent in the year 2009 as a result of the global financial crisis. However, industrial production has since recovered and in 2010, the industrial production growth rate was at 5.8 percent.

However, like all advanced countries, Canada’s economy is dominated by services. Retail, business, education and health have benefited from modern technology and processes to be among the most highly valued industries both domestically and globally.

Canada's major banks for example managed to emerge from the global financial crisis to be among the strongest in the world, thanks to the financial industry’s tradition of conservative lending practices and strong capitalization. Canada’s finance and banking industries remain among the fastest growing in the world and have potential for even further growth.

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