Canada bracing for ‘baby bust’

LONDON—If Canada doesn’t act fast to address its bigger-than-average baby boom, the country risks weakened GDP growth in the coming decade—a so-called baby bust.

That’s the outlook presented in a new report from Schroder Investment Management North America Inc., a U.K.-based global asset management firm.

It says Canada has a large proportion of baby boomers and could face the highest age-related spending of any other region in the Organization for Economic Cooperation and Development (OECD).

The baby bust will not only strain spending, but have an impact on businesses struggling to remain productive with fewer workers.

One of the ways Canada can be proactive is boosting its immigration and worker participation rates, especially among its aging population, says Virginie Maisonneuve, the report’s co-author and head of global equities at Schroders.

In fact, Maisonneuve expects that in just nine years all population growth will come from immigration and many sectors of the economy will be dependent on foreign workers.

The projections are in line with ongoing studies by the Conference Board of Canada, which expect the country’s labor force growth will slow dramatically in the coming years.

Pedro Antunes, director of the board’s national and provincial forecast, notes that growth from 2001 to 2005 was 1.8 per cent a year.

“As we look ahead, that’s going to be cut to about 0.7 per cent—just less than half,” he says. He agrees the labor shortage could hamper economic growth, presenting other risks as well.

“If you can’t afford programs such as healthcare at the time that there’s an increased demand for those resources from an aging population, it becomes problematic,” he says.

Antunes does expect some small solutions around the corner.

“One positive is we’re expecting strong immigration numbers, 350,000 a year,” he notes.

The addition of more women to the workforce will help as well.

“We also feel there’s an Aboriginal population that’s currently underutilized. We expect that to improve, especially with more resource sector developments in the province,” he adds.

But the Schroder report cautions that even immigration and the inclusion of older workers won’t be enough to offset the country’s population aging.

It forecasts healthcare and financial services will increase their share of GDP, but other sectors such as manufacturing and construction will decrease. Future growth will have to be driven by improvements in labour productivity, it says.

For manufacturing to make those gains in productivity, it will require more assistance from government, says Jeff Brownlee, vice-president of public affairs with Canadian Manufacturers & Exporters.

Brownlee says innovation is the key to improving productivity, but innovation can’t happen without firms spending on R&D, new technology and employee training.

“It’s not that businesses are unwilling to invest, but there’s a lack of funds for them to be able to,” Brownlee says, adding that while government has made some progress in allowing more after-tax revenues to put back into business, it’s not enough compared to other countries.

While it’s clear both business and government will face obstacles as they adapt to Canada’s changing demographic, the Schroder report did find some good news.

Canada is heading into its “baby bust” in pretty healthy shape, it says.

It has one the strongest fiscal positions in the OECD, a well-developed private pensions sector and a solid record for controlling healthcare spending.