The Bank of Canada has issued a stark warning, labeling Canada’s declining productivity growth as an “emergency” that could lead to higher interest rates and constrained wage growth for Canadians. In a speech delivered by senior deputy governor Carolyn Rogers in Halifax, the urgent need to address the country’s lagging productivity rates was emphasized.
Rogers stressed that productivity growth is essential for sustaining economic growth, creating more jobs, and boosting wages. However, despite signs of improvement at the end of 2023, Canadian productivity rates have declined for six consecutive quarters, posing significant concerns.
The root cause of Canada’s productivity challenge lies in inadequate business investment, particularly in machinery, equipment, and intellectual property. This lack of investment places Canada behind global counterparts, hindering the ability of workers to accomplish more in the same amount of time.
The country’s productivity stagnation contrasts sharply with the United States, where productivity has surged. Canada’s middling position among OECD countries further underscores the severity of the situation.
Rogers attributed part of the problem to a lack of competition within Canada’s industries, which reduces the incentive for companies to innovate and improve efficiency. Additionally, fluctuating government policies and regulatory uncertainties discourage business investment.
To address these issues, Rogers called for greater certainty in the policy environment and emphasized the importance of fostering competition to drive productivity gains. She also highlighted the need to better match newcomers to job opportunities to unlock Canada’s full economic potential.
The Bank of Canada’s upcoming interest rate decision on April 10 will be crucial in navigating the productivity crisis. While inflation has moderated, the central bank remains vigilant, monitoring wage growth and productivity gains to ensure sustained economic stability.
In conclusion, urgent action is needed to revitalize Canada’s productivity growth and safeguard its economic future. Failure to address this “emergency” could have far-reaching consequences for Canadians’ standard of living and overall economic prosperity.