Canada's Economic Structure

Smartly dressed businessman crossing a street in Toronto  

As one of the wealthiest nations in the world, Canada is dominated by a strong service industry and an abundance of natural resources. Canada is a country with some of the most educated minds in the world, which is why many industries have moved to the major parts of the country where skilled workers and affordable resources are plentiful.

Canada’s economy has grown at a 3.5-per-cent pace over the past three quarters, a rate generally not seen since the good old days before the Great Recession of 2008-09. Quebec just recorded its lowest unemployment rate on record. Nationwide, there are 1.8 percent more jobs today than a year ago, well above population growth.

As a country under the British crown, Canada has a private to public (Crown) property ratio of 60:40 and one of the highest levels of economic freedom in the world.

Canada's 3 Major Industries

Canada has a GDP of $1.6trillion ranking 10th nominally and 15th by PPP. Canada has a GDP growth rate of an estimated 0.5% which is projected to grow to 2.2%. The GDP per capita in 2014 was $56100 ranking 10th nominally and 9th by PPP. Services contribute 69.8% to the GDP followed by industry at 28.5% and agriculture at 1.7%. Canada has an unemployment rate of 6.6%, an inflation of 1% and 12.9% of the population live below poverty line.

The Canadian labor force is estimated to be 19 million people. The labor force per sector is estimated as follows: services with 76%, manufacturing 13%, construction 6%, agriculture 2%, and others make up 3% of the labor force. Canada has a public debt of $582 CAD which is 33.8% of the GDP. The revenues are estimated at $682.5 billion against expenses of about $750 billion. Canada has an estimated $65.82 billion in foreign reserves and donates an estimated $4.1 billion.

Canadian Economy

There are three major industries in Canada which include the service industry, manufacturing and natural resource sectors. As these sectors grow and develop, the need for skilled and qualified workers has become a necessity.

The service industry is dominant in Canada employing three-quarters of the population. Other important industries include transport, timber, paper products, minerals, natural gas, fish products and chemicals. The country is one of the leading producer natural minerals such as gold, nickel, aluminum and crude oil. Canada has the second largest oil reserves in the world.

Through immigration, Canadian industries employ a lot of foreign trained skilled and semi-skilled workers. Working and living in Canada as a skilled or semi-skilled worker gives you an opportunity to apply for Canadian permanent residence status. This means you and your family will live and settle in Canada.

Some of the biggest employment sectors in Canada include:

Construction: manual labour and engineering

With strong growth in the residential and commercial building sectors, as well as engineering works, the construction industry saw an average 3.4 percent annual payroll increase between 2010 and 2015.

Hiring activity has decreased somewhat over the last 18 months, due to slower industrial and commercial building, and less demand for drilling activity. Going forward, however, engineers will be in greater demand thanks to an increase in public infrastructure projects.

Accommodation and food services: restaurant and hotel staff

People lining up at a stall at a food market with attendat looking on

A 2.4 per cent yearly payroll hike is credited to a weak dollar that has prompted more Canadians to vacation at home while drawing in more foreign visitors, thus bolstering tourism. Lower gas prices have also boosted consumer spending, although spending will continue to trend toward self-service versus full-service restaurants.

Professional, scientific and technical services: IT design, accounting, legal and public relations

These industries saw an average payroll increase of 2.1 per cent, and employment growth remains strong across all categories within this sector.

Health care Personnel: physicians, doctors, Nurses, and home care staff.

Payrolls within this sector have grown 2.1 percent annually, and Canada’s aging population will continue to spur above average growth going forward.

Sectors such as retail, manufacturing, mining, oil and gas, and agriculture have seen a slight deep in activity of late. Of these, only the mining, oil and gas industry is set to see a rise in hiring next year amid modest commodity price stabilization and export activity.

These same trends are seen among self-employed Canadians, where construction and industry-oriented professions have experienced the most growth.

Infrastructure

An arial view of Saskatchewan overlooking a river

In 2007, the New Building Canada Plan was implemented. This $33 billion, government-funded plan is set aside for public, provincial, territorial and municipal infrastructure. Projects that support job growth, prosperity and productivity are among the top recipients of these much-needed funds.

The plan has been set to reduce commute time for working families, enhance economic productivity and create jobs in Canada. Connecting Canada with the world is a priority for the government, which is why transportation and connectivity projects take precedence.

These industries are hiring and will continue to do so for the foreseeable future.

On the other hand, the Canadian economy is also heavily reliant on exports and international trade. The U.S being Canada’s biggest trading partner.

Canada earned $523.904 billion in 2015 from exports. The primary export goods include motor vehicles and their parts, industrial machinery, plastics, aircraft, telecommunications equipment, chemicals, fertilizers, wood pulp, timber, crude petroleum, natural gas, and aluminum.The main export partners include the US 75.2%, China 4.10%, Japan 1.93%, Mexico 1.51%, India 0.86%, and South Korea 0.81%.

In 1988, Canada enacted free trade with the United States. Mexico became a partner in 1994 in the broader North American Free Trade Agreement (NAFTA), with over 444 million people and over $1 trillion in merchandise trade in 2008.

Importance of NAFTA to the Canadian Economy

The North American Free Trade Agreement (NAFTA) is a treaty among Canada, the United States and Mexico that eliminated most of the barriers to free trade among the 3 countries.

The agreement means purchasing certain items from NAFTA countries is often cheaper than buying similar goods from non-NAFTA countries. Thanks to NAFTA, enjoying Mexican avocados year-round is easy. Similarly, Canadians can save big by buying an American-manufactured car versus a model from Europe. Goods from NAFTA nations are imported tariff-free, based on NAFTA's rules of origin. These rules state the percentage of the product’s content that must originate in the member country.

NAFTA was the result of 14 months of intensive negotiations in 1991 and 1992. It was ratified by the Canadian, U.S. and Mexican legislatures in 1993, and took effect in January 1994. Before NAFTA, Canada and the U.S had a trade agreement called the Canada-U.S. Free Trade Agreement.

Here are 5 key ways Canadians have benefited from NAFTA:

  1. A wider selection of goods
  2. Increased trade volume
  3. Increased foreign direct investment (Canada’s foreign direct investment from the States increased by 243% between 1993 and 2013).
  4. Freer movement of professionals and investors across the border
  5. The development of new jobs

Challenges to the Canadian Economy

Canada has an over-reliance on natural resources which are unevenly distributed leading to the unequal growth of the regions. The exploitation of natural resources has had an adverse effect on the environment including the decline of cod fish and salmon as well as forest cover.

Overall, here are the 3 main challenges facing the Canadian economy now and in the near future:

Oil Prices

A huge oil rig out in the ocean waters

If lower oil prices, they represent a major threat to the Canadian economy:

Oil exports account for a larger share of GDP in Canada than they do in any other nation in the rich world, with the exception of Norway or the Gulf Arab monarchies. In fact, apart from Canada, Norway, or Denmark, every noteworthy developed economy in the world is actually a net importer of oil. Canada, in contrast, is the world’s 10th largest net exporter of oil, and the world’s 5th largest net exporter of oil outside of the Middle East.

None of Canada’s most important trade partners are likely to be among the main beneficiaries of falling oil prices. Canada has one primary trade partner, which is the United States, and three secondary trade partners: China, Mexico, and Britain. The US accounts for more than half of Canadian trade, while China, Mexico, and Britain combined account for close to 20 percent of Canadian trade.

None of these four countries, however, are significant importers of oil, or of energy in general.

Other Commodities

The price of oil is often correlated with the price of commodities in general, since bulk commodities tend to require a lot of energy to produce and a lot of fuel to transport. This presents an additional risk for Canada, given that Canada is not only a massive exporter of oil, but also of many other commodities.

Commodities other than oil account for an estimated 20-30 percent of all Canadian exports. Most of Canada’s most important non-oil commodities have prices that tend to correlate at least somewhat with oil prices. These include not only natural gas and coal, but also industrially used metals like nickel, copper, and iron ore, as well as nonmetal commodities like potash (used for fertilizer) and timber (which in Europe accounts for half of all energy produced from “renewables”), both of which Canada is the world’s largest exporter of. Canada is also the world’s third largest net exporter of electricity, trailing only France and Paraguay, and the world’s largest uranium producer apart from Kazakhstan.

China

The relationship between Canada and China is based around more than just exports of Canadian natural resources to China and imports of Chinese manufactured goods to Canada. British Columbia in particular has a close economic relationship with China, the result of Vancouver’s (and Victoria’s) Pacific coastline and physical isolation from most of the rest of the Canadian and North American markets.

British Columbia sends approximately 35 percent of its overseas exports to China, which is almost twice the share that the rest of Canada does, and 2.5 times the share that the United States does.

Partly as a result of this British Columbian transpacific relationship, Canadian exports to China are equal to roughly 2.5 percent of Canada’s GDP, whereas US exports to China are equal to only 1.3 of the US’s GDP. In addition, there are social and financial ties between Canada and China that are economically significant, albeit difficult to measure precisely, reflecting the fact that roughly 11 percent of British Columbia’s population and 5 percent of Canada’s total population are of Chinese origin — compared to just 1.2 percent for the US’s population, 0.3 percent for the European Union’s population, and 4 percent for Australia’s population.

All of this is to say that Canada will feel the effects of an economic slowdown in China, and not only because of the effect such a slowdown would have (and has already been having) on commodity prices. Canada could be particularly affected by a crisis in southeastern China, if one were to occur, since because of the historical connection between Canada and Britain, most of the Chinese immigrants in Canada have come from Hong Kong and adjacent parts of southeastern China (and spoke southeastern Chinese languages like Cantonese, even though Cantonese is only spoken by approximately 60 million people within China, compared to nearly a billion Mandarin speakers).