By James Langton

(November 22 – 16:50 ET) – Economists at TD Bank say it’s too early to talk of productivity gains in Canada.

Strong growth with low inflation has unfolded in the United States thanks to huge productivity gains. The same results are evident here, although TD says this is a consequence of an economy recovering from years of neglect, not increasing productivity.

Now with the economy starting to test the speed limit, TD says productivity gains are needed for Canada to keep from feeling the inflation bite. “Unless Canada’s productivity performance starts to improve fairly soon, economic growth will have to slow substantially in order to keep inflation in check.”

TD says that productivity jump has yet to emerge. “Consequently, there is every reason for the Bank of Canada to continue to err on the side of caution, barring more compelling signs that a true shift in Canada’s productivity performance has started to emerge.”

TD says labour productivity has picked up here, but it’s not yet certain if this is a long-term trend move, or just a brief aberration. “There is good reason to wonder whether these gains may evaporate as the Canadian economy slows, as it is expected to over the next few quarters.”

However, TD says there are signs that the productivity boom may yet happen north of the border. First of all, tech spending is booming to 10% of GDP. TD notes that this big increase in tech spending started four later in Canada compared to the U.S. Stable monetary policy and debt reduction efforts have also underscored this investment.

“All told, there is good reason to be optimistic about Canada’s productivity prospects,” but until the economy performs, TD says the Bank of Canada has every reason to remain vigilant on the inflation front.