BMO Analysis Reveals Australia's Economic Outperformance Over Canada: What Investors Need to Know

The recent BMO Capital Markets analysis comparing Canada and Australia’s economic trajectories since the 1980s has revealed a stark divergence in GDP performance, with Australia outpacing Canada by nearly 60% in nominal GDP growth over this period. While Canada’s GDP was nearly double Australia’s in the late 1980s, by the past decade, the gap had narrowed to just 1.25:1—a shift signaling profound structural differences in economic management. For investors, this analysis underscores critical considerations for long-term capital allocation, particularly as both nations approach 2025 with diverging growth trajectories.

The GDP Growth Divide: Causes and Consequences

The BMO report identifies GDP per capita as a central driver of the divergence. Australia’s per capita GDP, once lagging behind Canada’s, surpassed it around the 2008 Global Financial Crisis (GFC), a pivotal inflection point. By 2023, Australia’s per capita GDP—when adjusted for currency parity—had solidified its lead, reflecting a focus on sustainable productivity gains over Canada’s reliance on credit-driven, non-productive growth, particularly in housing.

Key Factors Behind the Gap:

1. Population Growth vs. Productivity:
2. Canada’s population (41.5 million) is now 1.5 times Australia’s (27 million), but this has not translated to proportional GDP gains. Australia’s slower, more balanced population growth (peaking around 2015) allowed its economy to sustain higher productivity.

4. Canada’s housing-centric growth model, while boosting absolute GDP, diluted per capita outcomes. BMO notes that housing investments—though driving short-term GDP—fail to enhance long-term productivity.

5. Post-GFC Policy Choices:

6. Canada’s approach to the GFC, often praised for avoiding a sharp collapse, involved distributing economic pain over 15–20 years via opaque fiscal measures and delayed bank bailouts. This “dull and persistent blow” to growth contrasts with Australia’s more transparent handling, which avoided prolonged stagnation in per capita metrics.

7. Former Deputy Governor Tiff Macklem’s warnings about Canada’s real estate bubble highlight systemic risks in prioritizing population accommodation over quality-of-life metrics like income growth.

8. Structural Misalignment:

9. Australia’s economy has balanced population expansion with productive sectors, while Canada’s credit-fueled housing boom diverted resources to non-income-generating assets. This misallocation has eroded Canada’s historical advantage in quality-of-life indicators, as GDP per capita now trails Australia’s.

Implications for Investors in 2024–2025

The BMO analysis suggests that Canada’s economic challenges will persist unless structural reforms address its reliance on housing-driven growth and opaque crisis management. Meanwhile, Australia’s stronger per capita trajectory positions it as a more resilient investment destination.

Sector-Specific Insights:

- Real Estate: Canada’s housing market, while still large, faces overvaluation risks due to stagnant income growth. Australian housing, while also facing affordability pressures, benefits from a more balanced economic foundation.

• Equity Markets: Australia’s ASX:All Ordinaries Index has outperformed Canada’s TSE:Composite Index since 2010, aligning with GDP trends. Investors may favor Australian equities in resource-heavy sectors (e.g., mining, energy) tied to its productivity-focused economy.

Conclusion: A Tale of Two Economies

The BMO analysis underscores a clear divergence in economic health between Canada and Australia. Australia’s 60% nominal GDP growth advantage since 1980, coupled with its post-GFC resilience and superior GDP per capita, positions it as the stronger long-term bet. Canada’s struggles—rooted in non-productive housing growth and delayed crisis management—suggest a prolonged period of subpar income growth and quality-of-life metrics unless reforms are implemented.

For investors, the data points to a strategic shift:
- Australia: Favor equities in productivity-driven sectors and monitor GDP per capita trends as a leading indicator.
- Canada: Exercise caution in housing-related assets and prioritize sectors less tied to non-productive growth (e.g., tech, renewable energy).

The writing is on the wall: Australia’s economic model has triumphed in this 40-year comparison. Investors ignoring this trend may find themselves on the wrong side of a widening divide.

This analysis synthesizes BMO’s findings to guide capital allocation decisions, emphasizing that GDP growth alone is insufficient—per capita outcomes and structural soundness are the true benchmarks of sustainable prosperity.