The Bank of Canada’s deputy governor Nicolas Vincent made the case on Wednesday that Canada is facing a ‘systemic problem’ when it comes to productivity.Sean Kilpatrick/The Canadian Press
The Bank of Canada said the country is “stuck in a vicious circle” of low productivity and suggested lowering the regulatory burden for companies and increasing competition as part of a co-ordinated push to improve the country’s growth prospects.
In a speech on Wednesday, deputy governor Nicolas Vincent made the case that Canada is facing a “systemic problem” when it comes to productivity – which can be understood as output per worker, or how efficiently labour and capital are combined to produce goods.
Canada’s productivity growth has lagged peer countries for the past two decades, leaving Canadians poorer than they would otherwise be and the economy less resilient to shocks, such as a sharp protectionist turn from our largest trading partner. This, he said, is the result of structural problems that lead to low business investment, limit competition and prevent companies from growing.
“To put it bluntly, we’re stuck in a vicious circle. When productivity is weak, it’s much harder to meet current challenges and seize opportunities for the future,” he told a group of economists in Quebec City, according to the English text of his speech.
“There is no quick or easy way to improve productivity, and no single sector can do it alone. The challenge is complex, and long-standing structural issues are at play. If we want to fix this, we’ll need to be thoughtful, systematic and resolute.”
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This is the latest attempt by the Bank of Canada to put a spotlight on the country’s weak productivity growth. In a 2024 speech, senior deputy governor Carolyn Rogers called it a “break-the-glass” emergency, touching off a national conversation about the issue.
Mr. Vincent went further in his remarks on Wednesday by suggesting three areas policy makers should focus on: improving the country’s investment climate, increasing competition and developing talent.
He said he often hears from businesses that Canada’s regulatory framework is too cumbersome and far-reaching, which dampens both their ability and willingness to invest.
“A certain level of regulation is essential, of course. But it’s fair to ask if we could regulate better. This could mean speeding up approval processes, re-evaluating the scope of some rules and reducing the overall uncertainty around regulation. We also need to address overlap, redundancies and contradictions between the different levels of government,” he said.
He added that Canada should invest more in trade-enabling infrastructure, address tax and regulatory issues that disincentivize companies from growing, and “review and rethink” Canada’s approach to competition.
“Improving productivity also means finding ways to foster strong and healthy competition in the Canadian economy. Nobody in this room would be surprised to hear me say it can be very hard for new entrants to break into certain highly concentrated sectors with a few big players. Think, in particular, of telecommunications, passenger transportation and financial services,” he said.
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The Bank of Canada typically avoids weighing in on federal or provincial government policy so as not to call its independence into question. But it has used its pulpit to shape public conversations around issues ranging from financial-sector competition to the impact of immigration on housing costs.
Mr. Vincent said that the central bank can’t do much by itself to address weak productivity. Raising and lowering interest rates can speed up or slow down the economy, but this won’t change structural impediments to business investment or help with labour-force development.
Still, the central bank is heavily invested in the issue, Mr. Vincent said, because rising productivity allows companies to pay higher wages without adding to inflation.
“Deep down, Canada’s affordability problem is really a productivity problem. Inflation has come back down after spiking in 2022, but just about everything still costs more than it did before,” Mr. Vincent said.
“If we want to make things more affordable, we need to raise our income. And the way to grow our income is by increasing productivity. Even modest improvements can make a big difference.”