A senior Bank of Canada official says the need to improve productivity has reached an emergency level as the economy faces a future where inflation may be more of a threat than in the past few decades.
In a speech, senior deputy governor Carolyn Rogers says an economy with low productivity can only grow so quickly before inflation sets in.
But, she says, an economy with strong productivity can have faster growth, more jobs and higher wages with less risk of inflation.
Rogers says when you compare Canada’s recent productivity record with that of other countries, what sticks out is how much the country lags on investment in machinery, equipment and intellectual property.
She also says Canada needs to focus on making sure the training and education we provide teaches the skills we need, while a more competitive business environment would also help drive greater innovation and efficiency.
Productivity lag a longstanding challenge
Lagging productivity has been a longstanding challenge in Canada, said Derek Holt, vice president and head of capital markets economics at Scotiabank.
“I think the Bank of Canada, to their credit, brought it to the very forefront of the public policy dialogue this morning by saying it’s an emergency and it’s urgent — their words — to address this,” Holt told CBC News.
“Otherwise, the ability to get inflation durably down to their two per cent target is going to be a tough thing to to accomplish.”
Canada’s annual inflation rate cooled to 2.8 per cent in February, beating many economists’ expectations and raising hopes the Bank of Canada will soon start cutting its benchmark interest rate. Power & Politics speaks with David Dodge, former governor of the Bank of Canada, about the latest data.
He said that the speech fell short of recommending policies that would help the country achieve higher productivity.
“If we don’t address productivity and start doing it very quickly … our living standards — perhaps in absolute terms, definitely in relative terms to some of the more successful countries in the world — will continue to decline,” Holt added.
Lower productivity also diminishes Canada’s competitiveness, and makes it more difficult to bring inflation under control, “because essentially workers are getting paid more for producing less, the combined effects of which are inflationary,” he said.
Rogers’ speech comes ahead of the Bank of Canada’s next interest rate decision and monetary policy report, which are set for April 10.