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Waning productivity set to sap growth, economist warns

Productivity growth has lagged in Canada compared to the U.S. and other countries.

Blair Gable/The Globe and Mail

Waning productivity growth is about to become the primary drag on Canadians' standards of living as other sources of economic growth weaken, said Toronto Dominion Bank chief economist Craig Alexander.

Mr. Alexander said Tuesday the benefits of a long real-estate boom, high levels of consumer spending and growth in government spending are all poised to taper off, removing three key drivers of recent economic growth. That means the main potential sources of economic growth will become exports and business investment, he said, which require more focus on worker productivity improvements.

"Nothing could be more core to the economic outlook than productivity and innovation, but it's really hard to convince most Canadians that we have a problem," he said.

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Canada's recent economic track record has been good compared to many countries, and most Canadians are not concerned about productivity improvements, he said in a speech to the Chartered Institute of Management Accountants in Toronto. But with economic growth no longer buoyed by such tailwinds as a low dollar or huge global commodity demand, the focus is returning to a decades-long problem with Canada's lower rate of worker productivity and slow productivity growth.

"The bottom line is if we don't do a better job on productivity, the pact of economic growth over the coming decades is going to be very modest," Mr. Alexander said.

Even assuming the rate of productivity growth in Canada will improve from about 0.9 per cent annually to 1.5 per cent, Mr. Alexander said current projections for economic growth still signal a one-third drop in annual growth rates and a one-quarter drop in income growth compared to recent years.

He also warned that government tax revenue will be affected if the rate of income growth declines, which makes it harder to finance social programs such as health care.

"While it doesn't sound like much, weak productivity growth will act as a major impediment on the prospect for a rising standard of living in this country," he said.

He said economists have had difficulty pinpointing why productivity growth has lagged in Canada compared to the U.S. and other countries, but said some factors include less capital investment by business, fewer major multinational companies, weak commercialization of research and development, lack of venture capital investing and a more risk-averse national culture that does not foster entrepreneurialism.

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About the Author
Real Estate Reporter

Janet McFarland is the real estate reporter for The Globe and Mail’s Report on Business, with a focus on residential real estate trends. She joined Report on Business in 1995, and has specialized in reporting on corporate governance, executive compensation, pension policy, business law, securities regulation and enforcement of white-collar crime. More

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