By David Ljunggren
OTTAWA, Nov 19 (Reuters) – The Bank of Canada on Wednesday called for a coordinated economy-wide approach to boost weak productivity, an issue it said was becoming more pressing in the face of challenges caused by U.S. trade policy.
The speech by Deputy Governor Nicolas Vincent was the latest effort by the central bank to urge policy makers to tackle decades of underperformance and insufficient investment.
“Shocks to our economy have become more frequent, and we are too vulnerable to their impacts,” he said in a speech to Quebec economists.
“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.”
Canada’s productivity has been lagging for 25 years, he noted. Average annual growth of labor productivity was about 3% in the 1960s and 1970s but fell to 1% between 2000 and 2019 and is now below 0.5%.
Policy makers could help in three areas, he said:
* creating a better investment climate, in part by trimming a cumbersome and complex regulatory framework
* increasing competition in key sectors dominated by a few big players, such as telecommunications, passenger transportation and financial services
* investing in talent by spending more on training and making it easier to recognise the credentials of foreigners
“Weak productivity is a systemic problem that demands a coordinated approach across the economy … given the tensions and conflicts that are destabilizing our economy, reversing the trend is more urgent than ever,” he said.
Although Canadian businesses facing strong international competition are more productive, competitive and resilient, weak investment means too few firms fall into this category, he said.
When the Bank of Canada looked at factors driving inflation, the relationship between rising labor costs and productivity is particularly important, said Vincent. Stronger growth in productivity means incomes could rise while inflationary pressures remained limited, he added.
(Reporting by David ljunggren, editing by Dale Smith)
((Reuters Ottawa editorial; david.ljunggren@tr.com))
Keywords: CANADA CENBANK/
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