For the first time in three years, a crucial gauge of how average Canadians are faring economically is showing signs of improvement, according to a new analysis from the Royal Bank of Canada. After a prolonged decline, per-capita gross domestic product (GDP) is on track to post an increase in 2025, signaling a potential turning point for household financial health.
Behind the Headline Growth: A Recession-Like Reality for Households
Recent years presented a paradox in the Canadian economy. While overall GDP grew by approximately 2% in both 2023 and 2024, the economic reality for individuals was starkly different. RBC economists, led by Frances Donald, described conditions for Canadian households as "functionally indistinguishable from a recession." This disconnect was largely masked by a historic population boom.
Between 2022 and 2024, Canada gained 2.1 million residents, a surge that swelled the labour supply and consumer demand on paper. However, beneath the surface, per-person GDP was declining. Households faced a severe squeeze on their buying power, pressured by high interest rates and persistent inflation. As consumer demand weakened, competition for jobs intensified, sending the unemployment rate soaring.
The Turning Point: Key Indicators Show Encouraging Signs
The RBC report points to a shift in dynamics for 2025. "Now, the reverse is happening," the economists stated. The recent federal curbs on temporary resident arrivals are expected to sharply reduce the number of new consumers and workers. While this will likely dampen total GDP growth, it should not significantly hurt per-capita growth or the unemployment rate.
Several underlying metrics now show "encouraging improvement." The unemployment rate appears to have peaked, falling to 6.5% in November 2024, which is 0.4 percentage points lower than the previous year. More importantly, per-capita spending growth accelerated to 2.4% in the second quarter of 2024, marking its fastest pace in three years.
Cautious Optimism and the Trade Outlook
RBC economists express "cautious optimism" that the improvement in per-capita GDP will continue. Interestingly, international trade ranks among their reasons for hope. While they do not expect the United States to reverse recent tariff hikes, they also anticipate no significant new increases as political appetite for trade conflict eases ahead of the November 2026 U.S. midterm elections.
Maintaining the Canada-United-States-Mexico-Agreement (CUSMA) exemption remains crucial, a point RBC argues is equally important for U.S. importers. "The improvement in per-capita GDP represents a significant milestone," the report concludes, suggesting that after years of feeling left behind by headline growth figures, the economic experience of the average Canadian may finally be starting to brighten.
