Bank of Canada deputy governor calls for coordinated reforms to break Canada’s productivity vicious circle

The Bank of Canada published remarks by Deputy Governor Nicolas Vincent arguing that Canada’s long-running productivity weakness has become a systemic constraint on wage growth, competitiveness and resilience to shocks, and that it also matters for inflation through its effect on unit labour costs. He framed the challenge as a self-reinforcing “vicious circle” in which weak productivity makes it harder to invest, innovate and adapt, which in turn holds productivity back. Vincent noted that average annual labour productivity growth was about 3% in the 1960s and 1970s but fell to around 1% between 2000 and 2019, with the weakness continuing through the pandemic and leaving Canada increasingly behind other G7 economies, particularly the United States. He argued that if Canada’s productivity growth since 2000 had matched other G7 countries, GDP would be about 9% higher, or almost $7,000 per person, and highlighted persistently low business investment as a key driver. The speech set out three priority “levers” beyond the Bank’s direct control: improving the investment climate by reducing regulatory complexity and uncertainty, addressing overlaps across governments and internal trade barriers, and upgrading infrastructure and trade capacity; strengthening competition in concentrated sectors such as telecommunications, passenger transportation and financial services; and investing in human capital through education and training, including for artificial intelligence, and better recognition of credentials across provinces and from abroad. The Bank’s contribution was positioned as maintaining inflation close to 2% to support stable macroeconomic conditions, alongside research and public engagement on productivity.