The latest data on Canada’s labour productivity continues to paint a grim picture, with yet another decline in productivity recorded in the third quarter of 2024.
Statistics Canada reported that productivity dropped by 0.4% last quarter, following declines of 0.1% in the second quarter and 0.2% in the first quarter.
“The decline in productivity in the third quarter reflects the slowdown in the pace of growth in business output, while hours worked continued to increase at a rate fairly similar to that of the previous two quarters,” StatCan said, noting that output growth slowed to 0.1% in the third quarter, down from 0.5% in the second quarter.
The latest reading marked the ninth time labour productivity has declined in the past 10 quarters, BMO Capital Markets noted in a research note, adding that weak productivity “remains a key obstacle to a meaningful economic recovery.”
“Simply put, productivity drives economic growth and — crucially for the current economic backdrop — allows incomes to rise without pressuring inflation,” BMO said.
National Bank Financial Inc. (NBF) said the productivity gap between Canada and the U.S. continues to grow.
U.S. productivity surged by 2.2% (annualized) in the third quarter, “marking the eighth consecutive increase,” NBF said. By contrast, Canada’s productivity was down 1.5% on an annualized basis.
“The Canada-U.S. productivity differential has become outright obscene,” NBF said.
One key factor in that growing disparity is the difference in business spending on research and development (R&D).
“Statistics Canada reported earlier this week that R&D spending intentions for 2024 remain lackluster, with the business sector allocating just under 0.9% of GDP. In comparison, this figure stands at 2.6% in the U.S., a stark contrast for a factor widely recognized as a key driver of productivity,” it said.
“It goes without saying that Canada must urgently develop policies to incentivize businesses to increase their investments domestically if we hope to enhance our standard of living.”
In the short term, BMO noted that the latest reading shouldn’t do much to change the Bank of Canada’s view of inflation and the economy. The central bank is set to announce its next interest rate decision on Dec. 11.
“We continue to expect a 25 [basis point] cut from the bank at next week’s meeting,” BMO said.