Economic output and labour markets have more than recovered their pre-pandemic levels, but improving productivity will be key for driving future growth. On that front, spending and investment is still lagging, says a new report from Statistics Canada.
Productivity improvements are essential to economic growth, and, against the backdrop of an aging population, enhancing productivity will become even more essential to raising living standards, the report said.
“With one-fifth of working Canadians nearing retirement age in the coming decade, higher productivity will be needed to offset the impact of the aging population on Canada’s workforce,” it said. “Higher productivity will also be essential for sustaining real wage growth and enhancing the productive capacity of Canadian industry.”
Yet, the sort of business investment that’s needed to drive productivity improvement remains 4% below its pre-pandemic mark and down 20% from its peak.
“Non residential investment has been slow to recover from the Covid-19 pandemic and remains well below peak levels observed in 2014 when large capital outlays in the energy sector fuelled productivity growth and income gains,” the report said, adding that research and development spending remains “well below” pre-pandemic levels too.
The move to reduce fragility in supply chains by “reshoring” in the wake of events such as the pandemic and Russia’s invasion of Ukraine, coupled with elevated inflation, may also hurt productivity, the report suggested.
“Persistent logistical challenges and escalating input costs may adversely impact productivity in the near term as companies adjust supply chains,” it said, adding that “productivity gains over the longer term will depend in part on maintaining access to globally competitive technologies.”
Conversely, another consequence of the pandemic — greater reliance on digital services — may provide “an important source of productivity growth akin to the integration of information and communications technology in the 1990s,” it said.
To that end, “Cross border linkages that facilitate innovation and technology transfer may be the key to productivity gains over the longer term,” it said.