Canada's economy isn't reaching full potential, says BoC's Rogers

Low investment, competition, and skills gaps hold back economic growth

Canada's economy isn't reaching full potential, says BoC's Rogers

Canada's economic growth is being stifled by weak productivity, warned Bank of Canada senior deputy governor Carolyn Rogers. 

Speaking at an event in Halifax, Rogers highlighted Canada's lagging productivity as a major economic hurdle.

“When you compare Canada’s recent productivity record with that of other countries, what really sticks out is how much we lag on investment in machinery, equipment and, importantly, intellectual property,” she said.

Labour productivity saw a brief uptick in late 2023, but GDP per capita has slipped back to 2017 levels. Canada's productivity record is also dismal, ranking second-worst among G7 nations. The country’s gap with the United States in terms of economic value generated per hour has been widening for decades, Bloomberg reported.

“Increasing productivity is a way to protect our economy from future bouts of inflation without having to rely so much on the cure of higher interest rates,” Rogers said.

Rogers outlined three key areas to improve Canada's productivity: labour skills, multifactor productivity, and addressing weak investment.

On labour, Rogers advocated for training programs and better utilization of immigrant skills, noting, "Too often, new Canadians are working in jobs that don't take advantage of the skills they already possess. And too often these people wind up stuck in low-wage, low-productivity jobs."

Regarding multifactor productivity, she said, "Businesses become more productive when they're exposed to competition. Competition drives companies to become more productive by innovating and by finding ways to be more efficient."

Lastly, Rogers acknowledged weak investment has long plagued Canada, with a persisting gap in capital spending per worker versus US firms that has worsened in the past decade.

Read next: BoC's battle against inflation shows signs of success

While the central bank decided against lowering borrowing costs at its recent meeting, economists surveyed by Bloomberg predict potential rate cuts starting in June. The next BoC meeting is scheduled for April 10.

“We’re not all the way back to target and we know we need to finish the job. But we have made a lot of progress,” Rogers said.

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