In a fervent call to action, the Bank of Canada (BoC) has underscored the critical need for businesses to ramp up investment to enhance productivity, emphasizing its role in safeguarding the economy against the looming threat of inflation. Senior Deputy Governor Carolyn Rogers, speaking at a business event in Nova Scotia, described the situation as an “emergency,” urging immediate measures to bolster productivity levels.

Rogers stressed that elevating productivity stands as a crucial buffer against inflationary pressures, offering an alternative to solely relying on interest rate hikes as a remedy. “Increasing productivity is a way to protect our economy from future bouts of inflation without having to rely so much on the cure of higher interest rates,” she emphasized, urging businesses to seize the moment and take decisive action.

The Bank of Canada’s recent decision to raise interest rates to a 22-year high underscores the seriousness of the inflationary challenge. However, Rogers refrained from specifying a timeline for potential rate cuts, indicating a cautious approach as policymakers navigate the uncertain economic landscape.

Identifying the root causes of Canada’s productivity woes, Rogers pointed to low levels of investment, limited competition, and underutilization of skills among new Canadians. She highlighted the stark disparity in investment between Canada and its global counterparts, particularly in areas such as machinery, equipment, and intellectual property.

Furthermore, Rogers warned that inflation could pose a more significant threat in the coming years, fueled by factors such as demographic shifts, climate change, and escalating global trade tensions. She emphasized that an economy with stagnant productivity is susceptible to inflationary pressures, constraining its growth potential and eroding competitiveness.

Despite initial expectations of a productivity rebound post-pandemic, Rogers lamented the continued stagnation in this regard, with Canadian companies lagging behind their international counterparts in investment initiatives. The recent uptick in labor productivity in the fourth quarter offers a glimmer of hope, but annual productivity data reveals a concerning trend of decline, underscoring the urgency of remedial action.

In light of these challenges, Rogers called for a concerted effort to reverse the productivity slump, urging businesses to prioritize investment in innovation, technology, and skills development. Such initiatives, she argued, are essential for driving sustainable economic growth, enhancing competitiveness, and mitigating inflationary risks in the long term.

As Canada grapples with the complexities of a rapidly evolving economic landscape, the BoC’s impassioned plea for enhanced business investment serves as a clarion call for collective action to safeguard the nation’s economic prosperity and resilience in the face of mounting challenges.