Bank of Canada’s Tiff Macklem urges businesses to innovate

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Bank of Canada governor Tiff Macklem says businesses should be inspired by the “enormous amount of ingenuity” they showed during the pandemic to boost the country’s declining productivity levels, but a failure to keep doing so could make “everything more difficult going forward.”

“Even as the economies being shut down (during the pandemic), 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 at a Montreal conference on Wednesday, a week after the Bank of Canada cut interest rates for the first time in four years. “How do we harness some of that ingenuity, that innovation, without having a crisis?”

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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 speech in March.

At the conference, Macklem said the central bank expected productivity growth to pick up coming out of the pandemic as companies found the workers they wanted to hire and the supply chain started to normalize.

“It hasn’t happened,” he said. “That’s why we made such a stark statement.”

The solutions are apparent — more investment in machinery, equipment, information technology, etc. — but Macklem said the tougher question is why that isn’t happening.

“There are some puzzles there,” he said. “We have all the ingredients; we have got to cut through obstacles.”

Productivity is a measure of gross domestic product (GDP) per hour worked. GDP measures the value of goods and services produced by a country during a specific time frame.

Macklem also said businesses should expect interest rates to gradually come down, but they should not assume they are going to go back to pre-pandemic levels, when the rates hovered between one and 1.75 per cent.

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“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 that, however, Macklem asked businesses to not be “paralyzed by uncertainty” and to make “smart bets,” despite geopolitical uncertainty and climate events that are likely to make things harder.

“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 said. “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 make its next announcement on interest rates on July 24. Macklem reiterated his previous stance and said the central bank would “take it one meeting at a time” as far as rates go and that the timing for further cuts would depend on incoming data.

“We have come a long way,” he said. “We are not there yet.”

nkarim@postmedia.com

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