Canada's Manufacturing Sector Suffers Steep Decline as Government Pushes Investment Reforms
Canada has experienced one of the sharpest manufacturing contractions among advanced economies since China joined the WTO, falling from 5th to 22nd on the UN Competitive Industrial Performance Index. In response, the federal government has introduced measures including a corporate tax 'mega deduction' to spur private capital investment.
Canada has endured one of the sharpest contractions in the share of its manufacturing sector among advanced economies since China joined the World Trade Organization (WTO) in 2001. According to National Bank economists, the country is now three years into a manufacturing recession marked by a dwindling number of factory businesses.
Data from the UN Competitive Industrial Performance Index illustrates the scale of the decline. Canada suffered the worst deterioration among advanced economies since 2000, falling from 5th place to 22nd place in 2024. Over the same period, the United States slipped from 1st place to 6th place. In contrast, China rose from 24th place to 2nd place after joining the WTO in 2001.
For the past 15 years, Canada has lagged behind its OECD peers in deploying private capital toward buildings, machinery, infrastructure, and intellectual property. This prolonged shortfall in investment has contributed to a decline in long-term economic capacity and productivity.
To reverse the investment slump, the federal government has introduced new measures under Mark Carney’s Investment Summit. These include a corporate tax "mega deduction" that allows immediate write-offs for new business asset investments, aiming to encourage private capital spending.
Despite these efforts, reversing the industrial decline is expected to require significant effort due to the magnitude of the contraction. An industrial comeback faces increased difficulty from external political pressures, including actions by the U.S. administration under Trump.