Bank of Canada says the country faces a productivity 'emergency'

financialpost.com:

Canada must tackle weak productivity to inoculate the economy against factors that will drive future inflation, such as the pullback from globalization, said Carolyn Rogers, senior deputy governor of the Bank of Canada.

“An economy with low productivity can grow only so quickly before inflation sets in. But an economy with strong productivity can have faster growth, more jobs and higher wages with less risk of inflation,” she said in a March 26 speech in Halifax, adding that other drivers of inflation will include changing demographics, the economic impact of climate change and global tensions.

Canada’s productivity has fallen from a “not great” record of producing 88 per cent of the value generated by the United States economy per hour in 1984 to just 71 per cent in 2022, she said. And while weak investment has been a problem in Canada for the past 50 years, the gap between the level of capital spending per worker by Canadian firms and the level spent by their U.S. counterparts has become worse over the past decade or so.

“While U.S. spending continues to increase, Canadian investment levels are lower than they were a decade ago,” Rogers told her audience, adding that Canada has also fallen behind most of its G7 peers, with only Italy seeing a larger decline in productivity relative to the United States.

“You’ve seen those signs that say: In emergency, break glass — Well, it’s time to break the glass,” she said.

Increasing competition is among the solutions that Rogers proposed. She also urged policymakers to focus on sectors and companies that add greater value to the economy and to set the stage for increased investment, including in technologies that will improve productivity and efficiency.

“When a company increases