The denominator problem: GDP growth
I have been writing a fair bit in recent months about what I have been calling the denominator problem. Just to be sure we all remember our Grade 8 math class:
My point has been that many times we are not using the proper denominator when evaluating any number of data points. This works widely for just about all economic and demographic data - and even works metaphorically but that is beyond the scope here.
If we just look at the numerator it tells only one part of the story. Think, GDP, income, inflation, population, workforce - any data point - without the proper denominator you might be missing the point.
Take GDP. After a nearly decade of almost no growth in real terms, GDP in New Brunswick has started to grow again since 2017 (excepting the pandemic year). Using the GDP by industry data, real GDP is growing 1.4% per year, on average, since 2017.
However, if you change the denominator to adjust for population size, real GDP per capita in 2023 was less than it was back in 2008.
Now, as I have written before I am not a slave to ‘per capita’. You can have a shrinking GDP and as long as your population is shrinking faster you get growth in GDP per capita.
That is not a very ambitious view of the province. Let’s make sure our population shrinks faster than our economy to boost GDP per capita.
But we can’t ignore population growth.
So NB’s real GDP growth in 2023 was 1.3%. What level of GDP growth just in 2023 would have ensured GDP per capita remained at the same level as 2022?
3.1%.
That’s a lot.
Lets go back to 2017 when the population and GDP started to grow again. What level of real GDP growth would we have needed each year just to achieve just a 1% rise in real GDP per capita each year?
2.4%
That is just about the level of GDP growth that I think we need in New Brunswick on an annual basis.
So, population growth = good but not sufficient to get us back to solid top line GDP growth (2.4%) and modest per capita GDP growth (1%).
We have now figured out how to attract population. Check. Now what are the export-focused industries that will attract more investment and get GDP back to sustainable growth?