The Bank of Canada’s senior deputy governor Carolyn Rogers is warning that waning productivity growth in the country is an “emergency” that can lead to higher interest rates and limit rising wages for Canadians. Rogers emphasized that productivity is crucial for sustaining rapid economic growth, creating more jobs, and increasing wages, while also protecting against inflation. Despite signs of improvement at the end of 2023, Canadian productivity rates have fallen in six consecutive quarters. Rogers urged the need to address this issue urgently, likening it to breaking glass in case of an emergency.
Productivity can be measured as the level of economic output per hour worked, and improving productivity involves equipping workers with the necessary tools to accomplish more in the same amount of time. One of the key factors contributing to low productivity rates in Canada is the lack of business investment, particularly in machinery, equipment, and intellectual property. Rogers highlighted the importance of competition in driving companies to become more productive through innovation and efficiency. She stressed that a more competitive environment can enhance productivity across the entire economy.
Rogers also pointed out that businesses need greater certainty in the Canadian policy environment to invest confidently in their operations. She noted that skilled newcomers joining the labor pool are often underutilized and end up in low-wage, low-productivity jobs, which negatively impacts productivity rates. Matching jobs and workers more effectively is crucial for the future of Canada’s economy. The Bank of Canada is scheduled to make its next interest rate decision on April 10, with annual inflation currently at 2.8 percent. The central bank is waiting for further confidence that inflation will return to its two percent target before considering easing the current elevated policy rate.
Overall, the Bank of Canada’s warning about waning productivity growth in the country being an “emergency” highlights the potential repercussions of low productivity rates on interest rates and wages for Canadians. Addressing issues such as lack of business investment, competition, policy certainty, and better utilization of skilled newcomers is essential for improving productivity and driving economic growth. The central bank’s upcoming interest rate decision will be influenced by factors such as inflation levels and the need for a return to the two percent target. Productivity remains a critical factor for ensuring sustainable economic prosperity in Canada.
