One of Canada’s top bankers is concerned about a new crisis—a lack of productivity. In a speech delivered in Halifax this morning, Bank of Canada (BoC) Senior Deputy Governor Carolyn Rogers took aim at the country’s stagnating productivity. She warned the issue has caused Canada to fall behind and become less competitive than its economic peers, a problem that’s getting worse by the day.
Canada Is In The Middle of A Productivity Crisis, Warns Bankers
Economic productivity is the scale of output generated by a population. The more value a population is able to generate, the higher the odds of household prosperity. Rising productivity means faster growth, more jobs, and higher wages—while reducing the risks of inflation.
“That’s why I want to talk about Canada’s long-standing, poor record on productivity and show you just how big the problem is,” said the Deputy Governor.
Adding, “You’ve seen those signs that say, ‘In emergency, break glass.’ Well, it’s time to break the glass.”
Canada Has Fallen Behind, Second Last In G7
Emphasizing the emergency, Rogers cited the country’s not so impressive track record. Despite being the youngest G7 with rapid population growth, the country is performing similarly to an older economy with no growth. The country has seen virtually no growth in recent years, with GDP per capita still around 2017-levels.
“And over the past four decades, we have actually slipped significantly compared with some other countries. In fact, relative to the United States, among G7 countries we are now second only to Italy when it comes to productivity decline,” said Rogers.
As we highlighted a few months ago, GDP per capita growth has been abysmal. Canada saw just 4.3% growth over the past decade. In contrast, the US advanced 47.4% over the same period. Yes, American output has seen a growth rate 10x Canada over the same period.
Canada Hasn’t Performed Well On Any Productive Growth Fronts
If Canada’s rapid population growth isn’t enough to drive productivity, what is? The Deputy Governor broke down drivers of growth into three areas—capital intensity, labor composition, and multifactor productivity.
Capital intensity: physical tools like machinery and equipment (M&E).
Labor composition: which includes the skills and training. While Canada has focused a lot on driving growth in trades to build housing, it’s neglected to foster other areas such as innovation.
Multifactor productivity: The interaction between the two and raising the efficiency of deployment.
She urged a greater focus on industries that add greater value, as well as making existing processes more efficient.
“Canada generally hasn’t performed well on either front. This needs to change if we want to ensure a stable and prosperous economy for everyone,” she said.
Canada Diverts Capital From Productivity To Housing, Investors Flee
The BoC cited investment in machinery & equipment (M&E), as well as intellectual property as the primary problem. A problem recently dismissed by policymakers as one resulting from increased interest rates. The Deputy Governor isn’t sold on that excuse, pushing back that this is a long-term issue.
“Weak investment has been a problem in Canada for a long time…investment levels were also weak in the years before the pandemic, when rates were much lower than today,” she said.
The BoC fell short of calling out the role of the country’s housing bubble, but it’s hard to deny. In economics, home prices are a category called “non-productive investment.” A home’s price can rise, but it doesn’t produce more goods and services as more capital is pumped into it.
It’s not surprising to see more and more capital flow from “risky” businesses and into state-backed housing. Housing has outperformed Canada’s capital markets in nearly every way. The incentive to invest in real estate has predictably diverted investment from M&E.
However, such a strong concentration is predictably isolating the country’s economy. Canada is failing to attract enough investment in its mortgage bonds, so much so it is now borrowing capital to inject into the market itself. At the same time, global capital is pulling their money out of Canada at a record pace to avoid exposure to a country that’s increasingly falling behind its peers.
But does anyone actually care? As investors have been pointing out—it’s almost time for rate cuts.
Ha ha. Did Carolyn Rogers try to talk with her boss Trudope?
She does not report to the P.M. but when it comes to misinformation I agree there are dopes everywhere.
The govt doesn’t run the banks?
Based what I see, they do.
No surprise, Canada’s GDP has been in decline since we signed free trade agreements with the US and then Mexico. As predicted, manufacturing has declined and with it productivity. We assemble cars, have service jobs, build houses and extract natural resources. Policy makers since the 1980’s have been happy to gloss over the fact that the loss of well paying manufacturing jobs hollowed out our economy. Sadly, the chickens are coming home to roost.
I think we all know what happened “since 2017” don’t we? That’s about when the inept, corrupt policies of this government started to bite. And now, since we didn’t accept our Lord and Saviour Justin Trudeau, he is deliberately destroying the country, not merely incompetence but malice aforethought, appointing a convicted vandal with absolutely no relevant qualifications to Environment and Climate Chains.
Load up the economy with cheap debt, cheap immigrant labour, government handouts and spending and do everything to pump up real estate and after all this pretend you do not know why there’s no productivity.
Country strength is determined by the productivity of its people (The strength of a nation). Measured in productivity Hence GDP is flat in Canada. Zero growth. Doo, and gloom unless you are government worker. Working for the gold plated pension. However the concern is the confidence of the people. Those pensions are failable, if confidence dwithers. And it is. Bank of Canada is warming the government, get off your behinds. Drop the regulations. Too many hurdles to cross Money/Capitol flows to where least resistance. Not the Maple Leaf state……
Considering the percentage of tax Canadians pay on their income followed by their properties, their necessities, as well as the rise in interest rates, to try to curb our spending, we as Canadians have nothing left. Foreign investors see the angst that Canadians are facing and look away from us as a location to begin business. The existing businesses are moving out of country to save on labor, building and business costs.
I’m not opposed to the immigration that has happened over the years, however when foreigners come to our country and send a third of their paycheck back to their home country to support their family, this does nothing for the betterment of the Canadian economy.
If the pandering of the willfully homeless changed to influence them in being part of society our need for foreign individuals to employ could be reduced.
Until this country realizes that we have everything we need within our massive shoreline, until we can learn to welcome manufacturing, development, and international industry, we are doomed to fall out of the G7 completely, and become an even more laughing stock of the world.
yes, Carolyn, thanks for this but nobody cares since most of those in power – likely even you – are well vested in real estate. The circus must go on.
You mean hiring government workers and pouring people into the country with no housing, healthcare or infrastructure plan isn’t good for the economy?
All true except Canada began falling behind when Diefenbaker buried the Avro Arrow.
Ahh, what could have been…
Why isn’t she the governor of BoC ? Tiff Macklem is just a door knob for Trudeau that that can be turned to suit , He was passed over twice for Carney and Poloz , both intelligent men with vision , when Poloz retired they chose the closest warm body , who is very good at nodding and smiling but not much more , and now we are paying the price ,
Basically solidifying the housing crash around the corner. With 0 productivity, what can keep this housing market inflated?
We’ve been so lazy and focused entirely on housing, there’s no way the bottom is close.
Labour composition: which includes the skills and training. While Canada has focused a lot on driving trade growth to build housing, it’s neglected to foster other areas, such as innovation. Canada’s economy is real estate, real estate, and real estate. Other than unaffordable housing and warehousing renters, what else is there?
Change the leaders. If not, there is no reason to invest in Canada. It seems we are no longer a first world country. Canada has devalued its dollar so badly traveling to other countries is not as affordable.
Canada taxes it’s people for everything we do. Even in death. Shame
Before my daily peek at Mr. Wong’s blog, I ran into two other takes on this. One, from the blog called Wall Street on Parade, on Larry Fink’s effort to blame seniors–make them patsies–for the collapse of living standards among the youth. The other is from the Revolutionary Communist Party (Canada) on a leaked report by the RCMP in which the national cops predict Canada may erupt into civil unrest once citizens, especially young people, realize the hopelessness of their situation.
It seems that multiple sources see the mounting storm clouds. Here are the links. First, the Wall Street observers:
https://wallstreetonparade.com/2024/03/billionaire-larry-fink-of-blackrock-which-grabbed-fed-bailouts-in-2020-2021-lectures-struggling-seniors-on-making-more-sacrifices/
And, the commies:
https://marxist.ca/article/secret-rcmp-report-warns-of-coming-revolution-communists-must-get-organized-now
Of interest, the Wall Streeters complain but the communists actually have a plan.
Stephen Punwasi makes an excellent point about housing. Rogers didn’t mention “houses” or “housing” once in the written text of her speech. Yet she helped preside over the first use of quantitative easing by the Bank of Canada, which certainly did do something to stimulate investment in housing and other non-productive assets.
I found it a frustrating, disappointing speech. Oddly enough, she mentioned that January 2024 saw the largest increase in the active population in the history of the Labour Force Survey, 125.5 thousand people in a single month. However, while Maxime Bernier can condemn the mass immigration policies of our social-engineering government that made this possible, the Senior Deputy Governor of the Bank of Canada obviously can’t do that. Not being able to do that, though, it is strange that she would take such an alarmist position on our poor productivity numbers. Why are we so poor at adopting labour-saving technologies? Well, duh, if you are being inundated by a sea of workers, there isn’t much incentive to do so, is there? Yet, the very title of her talk, “Time to break the glass”, suggests that this is an emergency situation that requires an emergency response. Really? Unless she is contemplating mass deportations, and there isn’t any indication that she is, surely the only humane thing to do is to accept the reality that our productivity numbers will look poor for a while until we soak up these additional workers, and muddle through as best we can. There won’t be an easy fix to this situation. And arguably, we do have priorities beyond economic ones that compel us to admit refugees from Ukraine or from other countries. This has been something Canada has done throughout its history. The Ontario Finance Minister who just brought down his province’s budget earlier this week is the son of a Hungarian refugee.
Surely the Bank of Canada’s Governing Council have more pertinent things to their own conerns to talk about than productivity. Patrick Sabourin’s research paper suggesting that the upward bias in the measurement of CPI inflation has fallen from 1.5 percentage points to 1.3 percentage points, promised in the 2016 renewal of the inflation control agreement, has never been published. Shouldn’t we get, if not that paper, then another paper that would analyze that issue, especially since there have been meaningful changes in the CPI methodology since 2016 (e.g., annual basket updates) that might affect that estimate?