The Bank of Canada is concerned about the waning productivity growth in the country, warning that it could lead to higher interest rates and limit rising wages for Canadians. In a speech in Halifax, senior deputy governor Carolyn Rogers emphasized the importance of productivity in sustaining economic growth, job creation, and higher wages, as well as its role in preventing inflation. Despite signs of improvement at the end of 2023, Canadian productivity rates have fallen for six consecutive quarters, according to Statistics Canada data. Rogers urged for urgent action to address this issue, comparing it to breaking the glass in case of an emergency.
Productivity, as measured by economic output per hour worked, is crucial for enhancing efficiency and output without requiring people to work harder. Rogers highlighted the lack of business investment in Canada as a key factor contributing to the country’s low productivity rates. Canadian businesses tend to invest less in machinery, equipment, and intellectual property compared to their global counterparts, which hinders their productivity growth. Rogers also emphasized the importance of competition in driving productivity, as it encourages companies to innovate and become more efficient. She noted that businesses need more certainty in the policy environment to confidently invest in their operations.
Rogers pointed out that the lack of proper utilization of skilled newcomers entering the labor force is also impacting Canada’s productivity rates. Many skilled individuals end up in low-wage, low-productivity jobs, leading to missed opportunities for economic growth. Matching jobs and workers more effectively is crucial for the future of Canada’s economy. The Bank of Canada is set to make its next interest rate decision on April 10, with annual inflation currently at 2.8 percent. The central bank aims to ensure that inflation cools back to its two percent target before considering easing the policy rate from its current elevated levels.
The warning from the Bank of Canada underscores the urgency of addressing the productivity crisis in the country to avoid negative consequences such as higher interest rates and limited wage growth. Rogers emphasized the need for increased business investment, competition, and better utilization of skilled workers to boost productivity and drive economic growth. The central bank’s upcoming interest rate decision will be influenced by factors such as inflation levels and the overall economic outlook. Addressing the productivity challenge is essential for ensuring a more competitive and prosperous future for Canada’s economy.
