Governor Tiff Macklem calls on businesses to harness pandemic ingenuity to improve productivity levels
Bank of Canada governor Tiff Macklem said businesses should draw inspiration from the “enormous amount of ingenuity” displayed during the pandemic to improve the country’s declining productivity levels, as reported by the Financial Post.
He warns that failing to continue this ingenuity could make “everything more difficult going forward.”
Macklem, speaking at a Montreal conference on Wednesday, highlighted the innovative measures taken by businesses during the pandemic.
“Even as the economies were being shut down, GDP declining rapidly, you were investing in new digital technology to figure out how to serve your customers digitally … the manufacturing sector rapidly pivoted to create personal protective equipment,” he said.
“How do we harness some of that ingenuity, that innovation, without having a crisis?”
Labour productivity in Canada has fallen in 12 out of the past 15 quarters, according to government data. Bank of Canada senior deputy governor Carolyn Rogers described the situation as an emergency in a March speech.
Macklem noted that the central bank expected productivity growth to pick up post-pandemic as companies found the workers they needed, and the supply chain began to normalize. “It hasn’t happened,” he stated. “That’s why we made such a stark statement.”
The solutions, Macklem said, are clear: more investment in machinery, equipment, and information technology.
However, the more challenging question is why these investments are not happening. “There are some puzzles there,” he admitted. “We have all the ingredients; we have got to cut through obstacles.”
Productivity measures the GDP per hour worked, with GDP representing the value of goods and services produced by a country within a specific timeframe.
Macklem also advised businesses to anticipate a gradual decrease in interest rates but cautioned against expecting a return to pre-pandemic levels when rates ranged between one and 1.75 percent. “We had a dozen years after the global financial crisis when interest rates were unusually low,” he said.
“I don’t have a crystal ball any more than you do, but it doesn’t seem like the most likely assumption going back to pre-pandemic levels.”
Despite uncertainties, Macklem encouraged businesses not to be “paralyzed by uncertainty” and to make “smart bets.” He emphasized the importance of investment amidst geopolitical and climate challenges.
“If you wait for all the uncertainty to be clear before you make an investment decision, unfortunately, one of your competitors has already taken that opportunity,” he warned. “Don’t speculate wildly, but make smart bets, manage that uncertainty, and don’t stand still; your competitors aren’t. We need investment, we need to grow.”
The Bank of Canada is set to announce its next interest rate decision on July 24. Macklem reiterated that the central bank would “take it one meeting at a time” regarding rate changes and that the timing of further cuts would depend on incoming data. “We have come a long way,” he said. “We are not there yet.”
