Good morning. We touched briefly on Canada’s productivity crisis yesterday, but it’s one of those phrases that has been repeated so often in Canada’s Economic Discourse that it somehow means nothing and everything at the same time. We’ll try to build a better perspective on it today.
Tariff tracker
Prime Minister Justin Trudeau has called a summit in Toronto on Friday to respond to the threat of American tariffs and protectionism.
Chrystia Freeland and Mark Carney have both released economic plans that pledge to diversify trade and spur investment in Canada.
Canada’s tech leaders are launching a project aimed at shaping policy to address their frustration with the country’s stagnant innovation agenda.
Sheertex Inc., a Montreal textile manufacturing startup, is slashing the size of its work force by 40 per cent, blaming uncertainty over the threat of U.S. tariffs.
Shaun Ghafari, dean of engineering at Humber Polytechnic, holds an "aerial compliant manipulator." Its flexible, continuous arm is ideal for operating in constrained spaces.Fred Lum/The Globe and Mail
Drones
Where things are looking up
A collective of researchers are advancing drone technology in Canada to make the country more competitive on a global scale, in anticipation of expanding federal regulations and growing industry demand for a new generation of flying robotics. Read innovation reporter Pippa Norman’s story here.
In focus
Not just a crisis of productivity, but of Canada’s identity
You’ve likely seen the wave of smart analyses, seminars, LinkedIn posts, warnings from economists and market watchers: Canada is facing dire crises of innovation, competition, talent retention and confidence. (I added that last one, but it felt right. Canada could use a win right now, eh?)
If it feels like these warnings have accelerated in recent years, you’re not wrong – or at least, you and I have similar interests and algorithms. That’s for good reason: Before Donald Trump’s recent tariff threats, a snowball set in motion several decades ago swelled in recent years as it rolled across a Canadian economy flattening by one key metric:
Canada’s investment levels are too low!
And that’s making the country less productive.
What that doesn’t mean: Our work force is getting lazier.
What it does mean: Labour productivity is a measure of input compared to output. Inputs are everything a person or business needs to perform a task: labour, equipment and supplies. Output is what a person or business produces from those inputs.
The Bank of Canada uses the example of a baker:
- Their inputs might include capital spending on a kitchen, baking ingredients and ovens, and labour-related investments in staff, training and skills to make and sell cookies.
- The baker’s output might be five dozen cookies per hour.
- The usual way to assess productivity is to look at the volume or value of what the business produces compared to its inputs.
Those investments might make for more cookies to sell, and possibly even tastier ones. So tasty, in fact, that customers will pay a little more. The baker’s profits increase enough to raise their employees’ pay. They might take that money to try out their rivals’ wares, to spend on concert tickets, or to subscribe to unlimited digital access to journalism across all their devices.
All of this investment spurs spending on goods and services, which makes for a healthier overall economy – an economy that can more readily afford to reach its commitments to defence spending, to support the retainment of talent, to rewire trading partnerships, to withstand its largest trade shock in nearly 100 years. Perhaps even to have avoided it.
If only Canada were that bakery. In all of the country’s key sectors, productivity growth has stalled out almost completely since 2019, after growing at a healthy rate of 1.2 per cent each year in the decade preceding the pandemic.
As Toronto-Dominion Bank reported ahead of Trump’s re-election, the woes are widespread:
- “Those working in the goods sectors have felt the downshift the most, where productivity has gone in reverse in the years since the pandemic. What does that mean? To get the same output, it now requires more hours from workers. Hard to believe this could occur in a digital age.”
Corporate Canada seems to have emerged from the pandemic firm in its resolve to keep its money tucked beneath its mattresses – rather than aimed at technological adoption, retaining skilled workers, and all the things it takes to make more cookies at a higher price with the same input.
That trend compares unfavourably with our friends (frenemies? exes?) to the south. Labour productivity growth in the U.S. has been strong over the same time frame, perhaps owing to spending on artificial intelligence and other technological advancements that have juiced what economists call “value produced per hour worked.”
Here’s how Canada compares with the U.S. and average spending from the G7.
Renaud Brossard, vice-president at the Montreal Economic Institute, said the lack of investment in Canada is “the direct result of our high levels of taxes and regulations compared with neighbouring jurisdictions.”
“The fact it was already hard enough to attract investment will only be compounded by the uncertainty created by President Trump’s tariff threats. Lawmakers at all levels of government will need to take a good hard look at their shared regulatory and fiscal burden to figure out how we can make Canada an attractive place to invest in once more,” he said.
Trump is ripping up the playbook of a competitive landscape that already found Canada in a hole.
Voices
Rob Carrick: Lessons from this week’s tariff drama for investors and mortgage shoppers.
Jessica Shadian: Canada, we need to talk about the other border.
Christopher Waters: Seven Canadian white wines to drink instead of American chardonnay.
Carbon Engineering lab supervisor Kathleen Cruz Gaw adjusts a microscope at a facility in Squamish, B.C.Tijana Martin/The Globe and Mail
Bookmarked
On our reading list
From the sky: Can the world’s first major plant to capture carbon directly from the sky survive the shifting politics of climate change?
Off track: Why Canada’s national sport organizations are running deficits.
From abroad: International student graduates earn much less than Canadian peers, a new study shows.
Morning update
Global shares rose in a modest relief rally as fears of an escalating trade war between the U.S. and its major trading partners ebbed while more large-cap companies are releasing earnings. Wall Street futures were mixed in narrow trading, while TSX futures pointed higher.
Overseas, the pan-European STOXX 600 was up 0.68 per cent in morning trading. Britain’s FTSE 100 rose 1.52 per cent, Germany’s DAX climbed 0.79 per cent and France’s CAC 40 advanced 0.75 per cent.
In Asia, Japan’s Nikkei closed 0.61 per cent higher, while Hong Kong’s Hang Seng gained 1.43 per cent.
The Canadian dollar traded at 69.64 U.S. cents.