Productivity is a problem, but is it an emergency?

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Is Canada’s weak productivity really an “emergency?”

That was a question raised by a panel of experts Wednesday after Carolyn Rogers, senior deputy governor of the Bank of Canada, gave a speech earlier in the week raising the alarm about Canada’s lagging productivity level and its effect on inflation.

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Frances Donald, global chief economist and strategist at Manulife Investment Management, said that while it will be important to have a conversation about productivity over the next few years,  she believes the central bank has bigger priorities in the short term.

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“It is not the most urgent issue facing Canada in the next year,” Frances told the economic panel hosted by Bloomberg in Toronto.

Donald noted the timing of Rogers’ warning, which comes as the country heads into what is going to be an “extremely challenging time.”

“We’re not going to be talking about productivity growth,” Donald said, adding that how high the unemployment rate will go and how fast interest rates come down will be more urgent topics.

Bloomberg journalist Tom Keene, who moderated the panel, said he was “thunderstruck” by Rogers’ speech out of Halifax the previous day.

“I’ve never seen the urgency over this strange word: productivity,” the Bloomberg host said.

David Rosenberg, founder and president of independent research firm Rosenberg Research & Associates Inc., told the panel the government sector is crowding out private investment and that is impairing productivity.

Government now accounts for around 26 per cent of Canada’s economy, he said, while the share of GDP taken up by business spending, which is the prime driver of productivity, has declined to a mere eight per cent. 

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“There’s been no growth for two decades in total factor productivity in Canada,” said Rosenberg, adding that the most up-to-date quarterly data on labour productivity is negative 0.6 per cent in Canada, while the United States is growing by 2.6 per cent.

He said the root of productivity growth is private sector capital stock, which has stagnated in this country in recent decades.

“That’s what has to change,” he said.

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Rachel Siu, BlackRock’s head of Canadian fixed income strategy, also a panel participant, said she finds it odd that Canada has been underperforming on productivity for four decades.

While she thinks Canada should break the emergency glass on productivity, it could have been done 20 or 30 years ago.

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