Carolyn Rogers, Senior Deputy Governor of the Bank of Canada, speaks at a press conference in Ottawa on March 6, 2024.Sean Kilpatrick/Canadian Press
The Bank of Canada warns that falling productivity and weak business investment have become a national “emergency”, making it difficult to contain inflation and risking a decline in living standards.
Senior Lieutenant-Governor Carolyn Rogers said in a speech in Halifax that Canada is falling further behind the United States and other peer countries when it comes to economic output per worker.
He cited weak business investment, a lack of competition, and a failure to adequately integrate skilled immigrants into Canada’s workforce.
“What I’m saying is this is an emergency. It’s time to break the glass,” the central bank’s second-in-command told a business audience on Tuesday morning.
Canada has long lagged behind the United States in terms of economic output per hour worked. However, the situation has worsened over the past decade, especially due to the pandemic. Until the final quarter of last year, productivity had declined for six consecutive quarters.
“In 1984, the Canadian economy produced 88 per cent of the value that the U.S. economy produced per hour,” Rogers said.
“That’s not great. But by 2022, Canada’s productivity has fallen to just 71% of the U.S. productivity. Over the same period, Canada has also fallen behind the G7 countries, producing less compared to the U.S.” Italy was the only country where gender declined significantly.
There are many theories as to why Canada’s productivity is so low, despite its highly educated workforce, strong research culture, and access to foreign markets through trade agreements.
Mr. Rogers highlighted the lack of corporate investment in machinery, equipment and intellectual property. Here, she pointed to weak competition and regulatory uncertainty in Canada as potential causes.
“The Canadian economy is characterized by a number of areas where businesses face limited levels of competition, including from other provinces, foreign rivals and new entrants,” she said. “Of course, every country has certain areas to defend, and there may be good reasons to protect local businesses. However, protecting too much can cause problems.”
He also said the country needs to do better to integrate new workers into the economy. Increasing productivity requires both providing better equipment for employees and ensuring that their education and skills are matched to the work they are doing.
“Too often, new Canadians are placed in jobs that don’t utilize the skills they already have. And too often, these people end up in low-paying, low-productivity jobs. “Successfully matching jobs and workers is critical to the future of Canada’s economy,” said Rogers.
He said weak productivity not only depresses overall growth but also makes the central bank’s job of containing inflation even more difficult. When a company is more productive, it can earn higher profits and pay better wages without passing increased costs on to customers. However, if productivity lags, higher labor costs tend to show up in higher prices.
“Increasing productivity is a way to protect the economy from future episodes of inflation without relying too much on the cure for rising interest rates,” Rogers said.
“We need to finish the job,” Rogers said, noting that inflation remains above the central bank’s target, but his speech largely avoided mentioning short-term monetary policy decisions. .
The bank’s next interest rate decision will be on April 10th.
