(Ottawa) Bank of Canada Governor Tiff Macklem sounds the alarm on Canada’s productivity problem and urges politicians to look at why the country is struggling with low business investment .
In a speech Monday to the Winnipeg Chamber of Commerce, Macklem praised the strengths of Canada’s labor market, including strong labor force participation, strong immigration and a strong education system.
The governor also highlighted the labor market’s adaptation to the rising policy rate, even though some workers, notably newcomers and young people, have been hit harder by rising unemployment.
Looking at the long-term economic situation, he warned that productivity is the country’s weakness. He points out that on average, companies invest much less for each worker in Canada than in the United States.
“Our Achilles heel is productivity. We have been very successful in growing our economy by adding workers. We have been much less successful in increasing productivity per worker,” he explained.
The governor’s comments echoed a March speech by Deputy Governor Carolyn Rogers, in which she warned that tackling low productivity had become a national emergency.
The issue is at the forefront of concerns for many economists, who fear that weak business investment could lower the country’s standard of living.
Mr. Macklem said it is essential to find ways to make Canada a better place to invest to support non-inflationary economic growth and a better quality of life.
Productivity growth, he said, helps businesses compete in global markets and promotes higher wages for workers.
“And with an aging population and limits to the number of immigrants we can successfully welcome each year, improving our productivity growth will become more important to maintaining trend growth,” Macklem said.
At a news conference later Monday, Macklem acknowledged that the solutions to Canada’s productivity problem are not in the hands of the central bank.
“But our message is this: if you want more non-inflationary growth, we will need a concerted discussion between business, government, academia and society about how we are going to increase productivity growth in the world. Canada,” he said.
Tiff Macklem suggested some areas that could be addressed by politicians, including interprovincial trade barriers and Canada’s slow regulatory approvals.
The governor’s speech comes less than three weeks after the Bank of Canada announced the first reduction in their key rate in more than four years.
Encouraged by slowing inflation, the central bank lowered its key rate by a quarter of a percentage point, bringing it to 4.75%.
Canada’s inflation rate was 2.7% in April. The latest inflation data for May should be released Tuesday by Statistics Canada.
The high policy rate has slowed the economy and cooled the job market.
The unemployment rate has increased over the past year, reaching 6.2% in May.