The Bank of Canada (BoC) on Tuesday stated that the business sector should urgently increase investment to increase productivity. The BoC stated that this would help protect the economy from the threat of inflation.
According to Senior Deputy Governor Carolyn Rogers that "Increasing productivity is a way to protect our economy from future waves of inflation without having to rely so much on the cure of higher interest rates."
The Bank of Canada has raised interest rates to the highest level in 22 years and said it was too early to discuss when they would start lowering interest rates.
Policymakers and businesses have expressed concern for years about low productivity in Canada, which Rogers attributes to low levels of investment, lack of competition, and the inability of newcomers to Canada to put their skills to good use.
Inflation could be a bigger threat than it has been in decades, as the benefits of globalization diminish and prices are squeezed by demographics, climate change, and global trade tensions, he said.
The central bank assumed that productivity would increase after the pandemic but so far this has not happened, he said. At the same time, companies in competing countries are investing more than Canada.
Canadian business labor productivity rose 0.4% in the fourth quarter after falling for six straight quarters. Annual productivity declined 1.8% in 2023, the third consecutive year of decline, according to Statistics Canada data.
