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The Canadian economy in 2010 resumed several long-term growth trends that emerged over the past decade. This was most evident in commodity prices and the stock and foreign exchange markets, as well as in employment by industry and exports.
Commodity prices recovered about half the losses they incurred during the 2008–2009 recession, and that recovery was also felt in the currency and stock markets. The Canadian dollar's average for all of 2010, at 97.1 U.S. cents, was the highest since 1976. Prices on the Toronto Stock Exchange were on average higher than in 2008 and just shy of their 2007 peak. Foreign investors purchased a net $17.3 billion of Canadian stocks in 2010.
The rise in the exchange rate and in commodity prices resulted in the largest annual increase ever in the terms of trade (the price of exports relative to the price of imports), up 5.8% in 2010. This recovery was reflected in real gross domestic income (a measure of purchasing power), growing 5.0%.
In 2010, construction (4.8%) and natural resources (3.5%) posted the fastest employment rebounds of any industry except for professional and related services. For construction, this capped a decade of leading all industries with 50.8% job growth; second was professional and related services, at 35.4%.
As the year progressed, the growth of government spending slowed and the economy transitioned to an expansion led by the private sector. Fourth-quarter exports posted their largest increase of the recovery, real business investment ended the year 14.0% ahead of its level a year earlier (with firms projecting growth continuing in 2011) and consumer spending rose steadily.
A rebound in economic growth
After contracting 2.6% in 2009, Canada's real gross domestic product (GDP) at basic prices rebounded 3.3% in 2010. This increase surpassed the average growth rate for the five years preceding the 2008–2009 recession. All the major industries except utilities posted gains. The output of the goods-producing industries increased 4.9%, following a 9.0% decline in 2009, while the production of services (2.6%) grew at a much larger rate than in 2009 (0.3%).
The main contributors to GDP growth in 2010 were construction (8.1%), manufacturing (5.3%), wholesale trade (5.2%), and mining and oil and gas extraction (5.0%). Retail trade and the finance and insurance sector also showed strength, and most transportation industries benefitted from the economic rebound.
Contributors to GDP
Consumer spending as a share of nominal GDP showed stability—about 59% in 2009 and 58% in 2010—even as nominal GDP fluctuated widely because of a 2009 drop and 2010 recovery in exports and business investment.
Exports in both 2009 and 2010 hovered around 29% of nominal GDP, well below their pre-recession share of 35%, and far below their record high of nearly 46% in 2000. The last time exports were less than 30% of GDP was in 1992 (27%).
Excluding housing, business investment's share of Canada's GDP fell to 11% in 2010, the lowest since 1996. It was evenly split between structures and machinery and equipment. Investment in structures as a share of GDP remained at historically elevated levels, reflecting the impact of the energy industry. For machinery and equipment, a 5.5% share of GDP was the lowest since 1963.
The housing recovery in 2010 lifted the share of residential construction in GDP to 6.9%, just below its peak of 7.1% in 2007. New construction recovered to 3.0% of GDP in 2010 (from 2.7% in 2009), while renovations' share rose to a record 2.7%.
Net lending by sector
During the 2008–2009 recession, the government sector switched from being a net lender to being a borrower—nearly $90 billion in both 2009 and 2010. Conversely, non-residents flipped from being net borrowers to being net lenders, as Canada switched from a trade surplus to a trade deficit. Much of this net lending by non-residents reflected significant purchases of government bonds. Canada's change from trade surplus to trade deficit reflects several influences. The initial switch late in 2008 reflected the severe drop in exports as the recession affected prices for natural resources and the demand for automobiles.
The widening trade deficit in 2009 and 2010, however, reflected the stronger recovery of domestic spending in Canada than in its major trading partners in the developed world.
Net borrowing by households increased to $31.6 billion in 2010, after declines in the previous two years. Mostly, this increase reflected the rebound in consumer spending.
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