Bank of Canada governor calls for policy changes to boost business investment
Bank of Canada Governor Tiff Macklem is urging policymakers to address Canada's sluggish productivity growth, calling it the country's "Achilles heel."
Macklem praised the strengths of Canada’s job market, including high labour force participation, strong immigration, and a robust education system.
While acknowledging that the labour market has adjusted relatively well to higher interest rates, he noted that certain groups, including newcomers and young people, have been more affected by rising unemployment.
However, Macklem pointed out a weakness in the country's economic landscape.
"Our Achilles heel is productivity,” he said in a recent speech. “We have been very good at growing our economy by adding workers. We have been much less successful at increasing output per worker."
The governor noted that Canadian businesses invest substantially less per worker compared to their US counterparts. He emphasized the critical need to improve Canada's investment climate to support non-inflationary economic growth and higher living standards.
Macklem explained, "With an aging population and limits to how many immigrants we can successfully absorb each year, improving our productivity growth will become more important to sustaining trend growth."
He said that solutions to Canada's productivity issues lie outside the central bank's purview.
"If you want more non-inflationary growth, we're going to need a concerted discussion between businesses, governments, and academics, civil society, on how are we going to get productivity growth up in Canada," Macklem said in a subsequent news conference.
The BoC head suggested addressing interprovincial trade barriers and streamlining regulatory approvals as potential areas for improvement.
Macklem's comments come in the wake of the Bank of Canada's recent decision to cut interest rates for the first time in over four years. The policy rate now stands at 4.75%, down by a quarter percentage point.
Regarding future monetary policy, Macklem indicated that if economic and inflation trends align with the central bank's projections, further rate cuts could be expected.
Canada's inflation rate was 2.7% in April, with May data due to be released by Statistics Canada on Tuesday. The country's unemployment rate rose to 6.2% in May, reflecting the impact of high interest rates on the economy and job market.
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