As the Canadian economy braces for slower growth, the underground economy in Canada is booming, according to a report published Friday from Statistics Canada.
The report indicates that underground economic activity in Canada (which includes both legal and illegal activity, but excludes illegal drugs and prostitution) totalled $51.6 billion in 2016. This represents about 2.5% of overall gross domestic product (GDP), which is in line with historic norms.
However, the underground economy grew notably faster in 2016 than the overall economy, the report says, as unreported activity rose by 3.5% from the previous year, compared with 2% growth in total GDP.
Weakness in the energy industry was the primary factor in the difference between growth rates for the underground economy and the overall economy. This “applied notable downward pressure on total GDP,” the report says, noting the energy sector is not significant contributor to the underground economy.
The biggest source of underground activity in 2016 was residential construction, which accounted for more than a quarter (26.6%) of the black market trade. Retail ranked second at 13.5%, and the hospitality sector (accommodation and food services) was third at 12.1%.
Additionally almost half (46.8%) of unreported income, which totalled $51.3 billion, went to employees directly in the form of compensation and tips on undeclared transactions, the report says. This unreported employee income is equivalent to 2.3% of official employee compensation.
The remainder of underground income went to incorporated business owners (28.3%) and unincorporated business owners (25.0%), the report says.