External Deputy Governor Nicolas Vincent discusses Canada’s longstanding weak productivity, what can be done to reverse the trend, and how we would all benefit if we do.

Watch External Deputy Governor Vincent speak to the Association des économistes québécois (ASDEQ) and CFA Québec. Read the full speech.

What productivity is and why it matters

Canada’s weak productivity growth is getting a lot of attention these days. And with good reason.

It makes our economy vulnerable to major disruptions like the trade conflict with the United States. Stronger productivity would protect against such shocks and give us momentum to seize opportunities in a rapidly changing world.

Strong productivity acts like a healthy immune system, making our economy more resilient. Contrary to what many people think, productivity does not mean working longer hours or working harder. It’s about making more with what we already have—it’s about producing better.

Canada’s weak productivity has persisted for 25 years. We’re less productive than other major economies, and that gap has widened since 2000, especially with the United States.

Improving productivity would allow us to earn more money while also keeping inflation low. If our productivity growth since 2000 had been similar to that of other G7 countries, our GDP in Canada today would be about 9% higher, which translates to almost $7,000 per person.

Deep down, Canada’s affordability problem is really a productivity problem. … To make things more affordable, we need to raise our income. And the way to grow our income is by increasing productivity.”

Learn more about productivity and how greater competition can improve it.

Stuck in a vicious circle

Why is it so hard to fix the problem? To put it bluntly, Canada is caught in a vicious circle.

Years of weak business investment means productivity in Canada is lower than it could be. When productivity is lower, wages don’t rise as quickly, so household spending slows and, with it, demand for products and services. The sluggish demand makes businesses less inclined to invest in new equipment and technology to increase their productivity. Lower salaries also make it harder to attract talent.

All the factors leading to weak productivity reinforce each other, and productivity weakens further.

It’s time to break out of this endless loop.

Reversing course

There are three main ways we can turn the vicious circle into a virtuous one.

  • Encourage businesses to invest more by simplifying rules, upgrading our infrastructure, and implementing policies that help small companies expand.
  • Foster healthy competition in sectors that support the broader economy such as telecommunications, transportation and financial services. This will boost efficiency and innovation and lead to better prices.
  • Invest in the workforce. Support education, training and recognition of credentials across provinces and territories and from abroad.

The Bank of Canada doesn’t have a direct role in fixing the productivity problem. Our job is to keep inflation low and stable. By doing this, we create the conditions for businesses and governments to focus their efforts on getting our productivity back on track.

Reversing course won’t be easy. But it’s worth the effort to improve our standard of living in the years to come and for future generations.

Even if the scale of the task seems daunting, there is an optimistic way to approach a systemic problem.”

Read the full speech.
Content Type(s): Press, Speeches and appearances, Speech summaries
Research Topic(s): Domestic demand and components, Financial services, Firm dynamics, Inflation and prices, International topics, Labour markets, Monetary policy, Productivity, Trade integration

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