Good morning. Remember the Great Productivity Debate of 2024? Well, just days removed from a federal budget – the first under Prime Minister Mark Carney – the debate is back. The current conversation on productivity is in focus today, along with updates on global trade.
Up first
In the news
Trade: Donald Trump says he won’t be meeting Prime Minister Mark Carney for “a long time” a falling-out between the two countries over an Ontario government TV ad that criticized the U.S. President’s protectionist tariffs. Meanwhile, a deal between the United States and China is drawing closer, officials say.
Diversification: Carney pitched Canada as a reliable trading partner with large stores of natural gas and critical minerals at a meeting of Asian leaders. He pointed to the importance of trade diversification after Trump said he’s hiking tariffs on Canadian imports by another 10 per cent.
Economy: The U.S. Federal Reserve and Bank of Canada are both expected to cut interest rates on Wednesday. Starved for data owing to the U.S. government shutdown, investors will look to the Fed for hints on its path beyond this week.
Real estate: Oxford Properties is in a showdown with RioCan over the Hudson Bay store at Toronto’s Yorkdale mall.
Toronto’s Financial District.Fred Lum/The Globe and Mail
In focus
The cost of standing still
First, a quick primer. Canada’s labour productivity – or output per hour worked – has been slumping for years, and the country’s gross domestic product per capita is down to 2019 levels. Why is this such a hot-button issue? Because stronger productivity helps to raise wages and living standards. We’ve talked about this in Business Brief before, too.
I’m Matt Lundy, The Globe’s economics editor. Not long ago, it felt like our newspaper ran a story or column just about every day on the productivity crisis. Then came the trade war. But our productivity problems haven’t magically disappeared, and if anything, the budget needs to address them head-on.
There are several explanations for Canada’s languishing productivity numbers, but chief among them is lacklustre business investment. Workers often don’t have the tools – whether equipment or software – to work more efficiently.
With that in mind, many stakeholders are hoping the Nov. 4 budget will deliver a tax and regulatory overhaul that encourages more investment.
“Canada needs to treat the plummet in business investment with the same urgency it treats other crises and address all contributing factors,” reads a Toronto Dominion-Bank report published today, written by the bank’s chief economist, Beata Caranci, and senior economist Francis Fong.
The goal, the TD economists wrote, should be to broaden the tax base while lowering statutory rates, which are those set by government for corporate and personal incomes and so on. (By comparison, effective tax rates are those actually paid after exemptions and tax credits, among other things.)
Meanwhile, the economics team at Bank of Nova Scotia has called on Ottawa to adopt “clear macro economic goals” alongside those for fiscal accountability.
“Put simply, debt is far less concerning when it generates a sustained rise in productivity and living standards,” reads a report from the bank’s chief economist, Jean-François Perrault, published last week. “The real risk lies in fiscal policies that fail to deliver those outcomes.”
Perrault suggested that targets should be set for growth in GDP per capita and non-residential investments.
The Prime Minister has said that changes to the corporate tax system are coming, but offered little detail. “We’re well aware of what the relative tax rates are in investment, and we will make sure that they are competitive in the budget,” Carney told reporters in mid-October.
The economy is under severe stress because of Canada’s lengthy trade war with the United States, which has led to a sharp decline in southbound exports, particularly in those industries targeted by U.S. tariffs, such as autos, steel and aluminum.
Because of the uncertainty, many companies have scaled back their investment and hiring plans.
Naturally, businesses are looking for tax cuts. A recent KPMG survey found that roughly nine out of 10 business leaders want Ottawa to deliver tax relief in the Nov. 4 budget.
Carney has framed his first budget as one that combines austerity in operational costs with sizeable investments to juice the economy. We’ll soon see what he means by “spend less, invest more.”
But the budget must go beyond generational investments from Ottawa. It’s imperative that Ottawa enact measures that get investment dollars flowing from the corporate sector, even as companies fret about the trade outlook.
Charted
Looking for friends
Doubling non-U.S. exports is hard, writes Jeff Rubin, author of A Map of the New Normal. While Carney has done the right thing by seeking rapprochement with China and India, there is another question of how much political support he can muster for such rapprochement. A new Angus Reid poll shows 57 per cent of Canadians favouring more trade with the EU, versus 14 per cent for China and 5 per cent for India.
Up next
At the bell: Meta, Apple, Alphabet, Microsoft and Google all report this week. The companies represent about US$15-trillion in market value, Amber Kanwar writes.
At the game: Rogers Communications is enjoying the Bay Street scramble to secure World Series tickets. But some execs are even flipping their tickets in Toronto and flying to L.A. The next two games are tonight and tomorrow.
Friday: We’ll be watching for data on Canada’s GDP for August. Market watchers are expecting another month of flat growth.
On time: It’s almost time to change the clocks. Here’s what it means for your health.
Morning update
Global markets were mostly higher as signs of easing trade tensions between China and the U.S. buoyed risk appetite, in a strong start to a week that will be headlined by central bank meetings and megacap earnings.
Wall Street futures jumped on trade optimism, while TSX futures followed sentiment higher.
Overseas, the pan-European STOXX 600 was up 0.05 per cent in morning trading. Britain’s FTSE 100 slipped 0.6 per cent, Germany’s DAX gained 0.18 per cent and France’s CAC 40 gave back 0.03 per cent.
In Asia, Japan’s Nikkei closed 2.46 per cent higher, while Hong Kong’s Hang Seng advanced 1.05 per cent.
The Canadian dollar traded at 71.56 U.S. cents.