Productivity is the engine of a robust economy and Canada, for all its favorable macroeconomic data, falls short
The country's Q1-2023 might foster a self-congratulatory mood
- GDP advanced by 3.1% in the first quarter '23, on an annualized basis, blowing past all the G7 countries
- Even though the battle on inflation is far from won, price increases are receding to a lower level than in the US, in the UK or in the Euro Area
True to form, the Canadian central bank raised rates by another quarter percentage point in July 12, after the previous surprise raise on June 7 to 4.75%.
Widely expected, the hike to 5% in July amounts to a very stark 475 basis points rise in 15 months (since March 2022)
However, short of stumbling on a restrictive rate policy, the economy will be haunted by structural problems which set the trend of productivity growth, or lack thereof
Labor productivity - measuring average real Gross Domestic Product per hour worked - goes to the heart of the matter of living standards
According to Statistics Canada, the product per hour worked fell from 108.3 (Q1-2022) to 106.4 (Q1-2023), down to the level touched in Q3-Q4 2017
And the gap with the US economy next door is large - and growing
Professor Tombe (U of Calgary) headlines his comparison drily by stating that "the Canadian province of Ontario and the US State of Alabama now have the same per capita GDP"
With two exceptions - energy-rich provinces of Alberta and Saskatchewan - Canadian provinces are in the bottom ranks compared to US States
At the conjunction of many factors, productivity cannot be 'explained' convincingly and supportive policies are hard to pinpoint
A selection of the top 50 Canadian companies listed on US exchanges (out of a total of 350) is unquestionably arbitrary
However, the concentration of these large firms in just 4 sectors - basic materials (8), finance (10), energy (10) and utilities & transportation (7) - with industrial goods and technology represented by just 3 firms each - does tell a story, rightly or wrongly, of an economy living the good life on an endowment of natural resources