Similar to how families must save and invest for emergencies, education and retirement, countries must also set aside a portion of today’s production to secure long-term prosperity.
And it’s not solely how much is saved that matters, but how it is invested. The quality and direction of investment ultimately shape a nation’s economic trajectory.
To better understand where major economies stand, we examined four indicators across the world’s 20 largest economies in 2024: Gross domestic product (GDP), gross domestic savings, gross fixed capital formation and the share of investment directed toward residential real estate.
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GDP measures economic size. Gross domestic savings represent the share of output not consumed but set aside for future use. Gross fixed capital formation captures investment in productive fixed assets such as buildings, machinery, infrastructure and intellectual property. The final measure shows the share of that investment allocated to residential real estate.
Although statistical methodologies vary somewhat between countries, the magnitude of these differences still points to meaningful structural contrasts.
Several patterns stand out. The largest Asian economies, excluding Japan, all have investment rates greater than 29 per cent of GDP. China is particularly striking, with gross domestic savings equal to 43 per cent of GDP and investment at 39 per cent. By contrast, investment rates in the G7 countries range between 19 per cent and 26 per cent. The difference reflects China’s position as a net lender to the rest of the world.
The relatively modest savings and investment rates across much of the G7 warrant concern. Excluding Japan, none exceed 25 per cent. Britain stands out, with savings and investment both below 20 per cent.
Canada sits in the middle, with savings and investment both at roughly 23 per cent of GDP. The real issue, however, is not the amount, but where that investment goes.
In 2024, Canada allocated a larger share of its total fixed capital formation to residential real estate than any of the other top 20 economies. While strong population growth helps explain elevated housing investment, the trend has been building for nearly two decades, peaking in 2021 before moderating slightly.
Yet despite substantial residential construction in Canada, affordability challenges persist.
Of that total investment, roughly one-third flows into residential real estate, leaving only about 15 per cent for machinery, infrastructure and intellectual property. That imbalance may constrain the productivity growth needed to sustain higher wages and living standards. It could also help explain the continued dominance of legacy firms in the Canadian economy.
Rebalancing investment toward more productive sectors should be a policy priority. Stronger tax incentives for intellectual property, advanced manufacturing and startups, combined with regulatory reforms that reduce barriers for small businesses, could help mobilize private capital.
Without a shift toward productivity-enhancing investment, Canada risks falling behind faster-investing economies.
Hanif Bayat, PhD, is the CEO and founder of WOWA.ca, a Canadian personal finance platform.
