Why productivity growth is important right now
Higher productivity means the economy is producing more value for the same amount of work. That increased production drives improvements in our standard of living. Aging populations, rising trade tensions, geopolitical instability and the economic impacts of climate change could all cause inflation to increase. But higher productivity can help protect us from the worst effects because:
- when workers produce more for each hour worked, companies are more profitable and can absorb higher costs, including higher wages, without having to raise their prices
- more efficient production of goods and services means a greater supply, which helps keep prices and inflation lower
- more productive companies can withstand the economic disruptions that can be caused by events like geopolitical conflict and extreme weather
Canada has all the right ingredients to increase productivity. Our workforce is well educated, our universities have a strong research culture, and our trade agreements give Canadian companies access to international markets. Each of these is an advantage, but we also need to:
- invest in equipment and technology
- train and educate workers to build skills for the future
- ensure that Canada’s business and regulatory environment encourages competition, which helps keep prices down
The Bank of Canada also has a role to play in increasing productivity. By keeping inflation around 2%, we support the economic stability businesses need to invest in themselves. Low, stable and predictable inflation creates the best investment climate because it allows businesses to plan for the future with confidence.
