Bank of Canada governor Tiff Macklem is sounding the alarm on Canada’s productivity problem and urging policymakers to dig into why the country struggles with low business investment.
According to prepared remarks he delivered to the Winnipeg Chamber of Commerce Monday, Macklem hailed the strengths of Canada’s job market, including high labour force participation, strong immigration and a solid education system.
The governor also reflected on the fact that the labour market has adjusted relatively well to higher interest rates, albeit some workers, including newcomers and young people, have been harder hit by rising unemployment.
But looking at the longer term economic picture, he warned productivity is the country’s weakness, noting that on average, businesses invest much less per worker in Canada than they do in the United States.
“Our Achilles heel is productivity. We have been very good at growing our economy by adding workers. We have been much less successful at increasing output per worker,” he said.
The governor’s comments echoed the central message of a speech senior deputy governor Carolyn Rogers gave in March, where she warned addressing low productivity has become a national emergency.
The issue of is top-of-mind for many economists concerned that low business investment will depress living standards in the country.
Macklem said figuring out how to make Canada a better place to invest is critical to supporting non-inflationary economic growth and higher living standards.
Productivity growth, he said, helps businesses compete in global markets and supports higher wages for workers.
“And with an aging population and limits to how many immigrants we can successfully absorb each year, improving our productivity growth will become more important to sustaining trend growth,” Macklem said.
The governor’s speech comes less than three weeks after the Bank of Canada delivered the first interest rate cut in more than four years.
Encouraged by slowing inflation, the central bank lowered its policy rate by a quarter of a percentage point, bringing it to 4.75 per cent.
Canada’s inflation rate was 2.7 per cent in April. The latest inflation data, for May, is set to be released Tuesday by Statistics Canada.
High interest rates have slowed down the economy and cooled the job market, as well.
The unemployment rate has steadily increased over the last year, reaching 6.2 per cent in May.
