Canada’s business economy at a turning point: what will define long-term competitiveness?

For decades, Canada’s economic growth was underpinned by natural resources, population expansion and deep integration with the United States. That model delivered stability and scale. Today, however, Canada stands at a turning point. Trade tensions, shifting industrial strategies in Washington and a more fragmented global economy exposes a harder question: can Canada translate its structural advantages into sustained productivity growth in a more competitive era?

Energy, minerals, agriculture and forestry still shape exports and employment. But something quieter is shifting beneath that legacy. Canada is increasingly judged not only by what it produces, but by how productively it generates value and how credibly its institutions support private growth. That shift is what makes this moment feel less a continuation and more like a structural break.

When competitiveness comes up in business circles today, the conversation rarely stops at output. It turns to capital investment, value creation and whether firms can sustain gains in productivity over time. For Canada, those questions are central to its economic trajectory.

From resources to value chains

Canada remains one of the world’s significant resource producers. The challenge is less about extraction and more about what happens next. Future gains will depend on capturing more value domestically rather than exporting raw inputs alone.

Recent OECD analysis has noted that productivity growth in Canada has been relatively subdued, highlighting the importance of stronger investment in capital, technology and innovation. The broader point is clear. Moving up value chains requires sustained investment in skills, machinery and intellectual property, particularly at a time when global competitors are deepening their industrial capacity.

Trade patterns underscore both strength and exposure. Roughly three-quarters of Canada’s goods exports still go to the United States, reflecting decades of deep integration. That access provides scale and proximity. Yet reliance on a single dominant partner also amplifies vulnerability when trade relations become more uncertain. Efforts to broaden trade relationships into European and Indo-Pacific markets signal recognition that resilience now requires broader engagement.

Competitive advantage will increasingly come from embedding resource strengths into advanced manufacturing, processing and technology rather than relying primarily on resource extraction. That transition is not automatic, and it carries urgency in a more competitive landscape.

Stability and the productivity challenge

Canada benefits from institutional predictability. Independent courts, enforceable contracts and transparent corporate governance reduce uncertainty for investors and business leaders. In cross-country comparisons such as the World Bank’s Worldwide Governance Indicators, Canada consistently ranks strongly on rule of law and regulatory quality.

In more volatile global conditions, those fundamentals matter more. Stable institutions lower transaction costs and allow firms to plan beyond short-term cycles. They also support deep capital markets, influencing where and how businesses invest.

Yet stability on its own is not enough. Output per worker has grown modestly in recent years, and business investment per employee has trailed some peer economies. Analysts at the Bank of Canada and independent institutes have pointed to underinvestment in machinery, equipment and digital assets as a persistent drag on productivity.

Productivity is not an abstract policy metric. It shapes wage growth, competitiveness and corporate profitability. For business leaders, productivity determines whether firms can grow, compete and remain profitable in a market where capital is mobile and competition is intensifying.

Talent and urban growth

Demographic growth is another defining feature of Canada’s economic landscape. A growing labour force supports consumption and expands domestic markets. Major urban centres such as Toronto, Vancouver and Montreal have evolved into hubs for finance, technology and life sciences.

Population growth, however, does not automatically translate into higher living standards. The OECD has warned that rapid labour force expansion without matching capital investment can depress output per worker. When productivity growth is already subdued, that imbalance becomes more consequential. Housing supply constraints – such as those highlighted by the Canada Mortgage and Housing Corporation – emphasise how infrastructure capacity can constrain affordability and, in turn, limit broader economic performance.

These dynamics intersect in practical ways. Talent attraction, infrastructure capacity and capital investment influence where firms locate and how they scale. Entrepreneurial ecosystems do not form simply because people are available to work. They grow when talent can move freely, financing is accessible and businesses have the confidence to invest for the long term. At a turning point of heightened global competition for capital and skills, those conditions cannot be taken for granted.

Trade in a more complex global economy

Canada remains one of the more trade-dependent advanced economies. Global integration has long supported growth and shaped corporate strategy. But international commerce is becoming harder to navigate.

Firms are not just looking for new markets; they are assessing exposure to political tension, supply disruptions and shifting regulatory standards. Expanding into Europe or the Indo-Pacific is often less about chasing growth and more about spreading risk in a less predictable environment.

This shift affects how deals are structured and how risks are priced. Transactions that once centred on commercial terms now require careful consideration of foreign investment laws, intellectual property protection and data rules across jurisdictions. Advising firms in this fragmented global economy means understanding how legal and institutional differences shape business outcomes, not simply whether a deal makes financial sense. 

Governance as economic infrastructure

Canada’s economic advantage may lie not in being the lowest-cost jurisdiction, but in the credibility of its institutions. Transparent legal frameworks and predictable regulatory processes allow firms to plan beyond short-term cycles and price risk with greater confidence.

Across advanced economies, stronger legal and regulatory systems are consistently associated with higher levels of investment and income. When businesses trust courts and regulators, they commit capital more readily and for longer horizons. Over time, that confidence shapes how resources are allocated across sectors and regions.

At a moment when investors are reassessing geopolitical exposure and regulatory stability, institutional credibility becomes a competitive asset in its own right.

Recalibrating competitiveness

Canada’s economic advantages are real. Access to major markets, a growing labour force and credible institutions provide a strong footing. But this is a turning point, not a continuation of the decades that preceded it. External conditions are less predictable, competition for capital is more intense and productivity gaps are harder to ignore.

Stability alone is no longer sufficient. In a global economy where capital moves quickly and strategic industries are being reshaped, relative underperformance compounds over time. How Canada navigates this shift matters as much as the assets it possesses. What lies ahead will depend on whether firms and markets can turn structural strength into sustained growth in a more uncertain global economy.