A “shock chart” from the National Bank (BN) recently indicated that in 2019, Montreal’s gross domestic product (GDP) per capita lagged behind Toronto’s by 25%. This figure was taken up by the Minister of Finance, Eric Girard, and by the daily Montreal Gazette. However, it considerably exaggerates Toronto’s real lead over Montreal in terms of economic performance. Here’s why.
From 1970 to 1995, the Montreal economy experienced very difficult years. During this period, Montreal’s unemployment rate regularly fluctuated between three and six percentage points above that of Toronto. Starting in the 1990s, however, the trend reversed. For 30 years, the Montreal economy has been experiencing an economic renaissance that has all the appearance of a small revolution. Toronto’s Financial Post even talks about the emergence of a Montreal 2.0 which challenges Toronto and which arouses the enthusiasm of several Montreal entrepreneurs such as Harley Finkelstein, Mitch Garber and Chris Stern.
Recent developments prove them right. In 2022, 80% of Montreal’s population aged 15 to 64 was employed, compared to 77% in Toronto. And the unemployment rate had landed at 4.8% in Montreal, significantly below the 6.4% rate in Toronto.
The overall performance of the economy, in turn, is measured by the real volume of goods and services (GDP) that the economy manages to produce per inhabitant of working age (15 to 64 years old, say). Data from Statistics Canada allows us to calculate that, from 2001 to 2019, this indicator increased by 27% in Montreal, compared to 17% in Toronto. Montreal hasn’t yet caught up to Toronto, but Toronto’s lead, which was 14% in 2001, had dwindled to about 5% just before the pandemic.
How then can we explain that the calculation of GDP per capita by BN economists gives an economic delay of 25% for Montreal while we estimate it at 5%? There is no quarrel over numbers here. Quite simply, the BN does not measure the same thing as us. Two elements are at the source of the difference.
The first is that the denominator of their GDP per capita includes all elderly people, the vast majority of whom are inactive and do not, by definition, offer any work contributing to GDP. This inclusion has the effect of lowering the GDP per capita of Montreal compared to that of Toronto because the demographic weight of elderly people is greater in Montreal.
The second element is that BN economists use a concept of GDP which estimates the monetary value of goods and services produced and sold rather than their actual physical volume. This obviously gives a lower GDP for Montreal, because on average, the same goods and services (including housing services in particular) are sold much less expensively in Montreal than in Toronto. Statistics Canada, for example, estimated that in 2019, the same representative consumer basket that cost a Montreal household $1,000 cost a Toronto household $1,150.
However, we are serving the 25% delay calculated by the BN economists for these two elements. By strictly following the international rule, which requires that comparisons be made on a basis of purchasing power parity, we compare the real physical quantities of goods and services that the two metropolitan economies manage to produce with the human resources offered by their population from 15 to 64 years old. This is the accurate portrait of the Montreal-Toronto gap, a 5% that we now have to fill.
The conclusion that the Montreal economy has experienced a vigorous renaissance over the past 30 years and is gradually closing its performance deficit compared to Toronto is unavoidable. Montreal is no longer the “broken leg duck” of the 1970s to 1995. There is still a lot of work to do in all areas, but let’s say that the goal of parity with Toronto is entirely achievable.
