Productivity in Canadian businesses increased 0.3% in the last quarter of 2006, after a weak performance over the two preceding quarters, Statistics Canada reported today.

The increase between October and December reflected a slight slowdown in growth in gross domestic product (GDP) and a more noticeable slowdown in the growth in hours worked, StatsCan said. Productivity improves when the GDP increases more than hours worked.

With the depreciation in the Canadian dollar, unit labour costs expressed in U.S. dollars were down in the fourth quarter for the first time in six quarters. This allowed Canadian businesses to recover some of the competitiveness they had lost in relation to their U.S counterparts starting in the third quarter of 2005.

Meanwhile, annual productivity growth reached 1.2% for 2006 as a whole, lower than the 2.1% recorded in 2005. This moderate gain in productivity can largely be attributed to the slowdown in productivity growth in the goods sector, while the services sector made a more positive contribution.

In comparison, annual productivity growth in the United States was 1.7% in 2006, continuing the slowdown since the 4.1% peak recorded in 2002.

In particular, shortages of skilled labour in the West contributed to the productivity slowdown; and developments associated with activity in Alberta’s tar sands, which resulted in strong growth in the volume of hours worked without yet generating commensurate increases in production.