Why the Bank of Canada Highlights Productivity As A Major..

On December 10, 2025, the Bank of Canada held its policy rate steady at 2.25%, citing strong economic growth, stabilizing inflation, and a neutral policy stance amid trade uncertainty. While these factors justified keeping rates unchanged, the Bank also emphasized Canada’s weak productivity performance as a critical structural challenge. Here’s why productivity is central to its outlook:

Strong Growth Masks Underlying Weakness

Canada’s economy posted 2.6% annualized GDP growth in Q3, and unemployment fell to 6.5%, signaling resilience. However, much of this growth has been driven by labor force expansion, not efficiency gains. Productivity—output per hour worked—has stagnated for years, meaning businesses are hiring more workers rather than producing more with existing resources.

Why it matters: Without productivity improvements, growth becomes costlier and inflationary, forcing the Bank to keep rates higher for longer.

Inflation Risks from Low Productivity

Headline inflation eased to 2.2%, near the Bank’s 2% target, but core inflation remains sticky at 2.7–3.0%. Weak productivity amplifies cost pressures because firms face rising labor costs without offsetting efficiency gains. This dynamic threatens price stability and complicates monetary policy.

Bank’s concern: If productivity doesn’t improve, inflation could reaccelerate even in a slowing economy, limiting room for rate cuts.

Competitiveness and Investment

Persistent productivity gaps reduce Canada’s global competitiveness. Businesses invest less in technology and innovation when returns are uncertain, creating a vicious cycle of low capital intensity and weak output growth. The Bank warns that structural reforms—such as boosting business investment and innovation—are essential to sustain long-term growth without inflationary strain.

In today’s competitive environment, productivity isn’t just a metric—it’s a survival strategy. The Bank of Canada has repeatedly flagged weak productivity as a structural risk to Canada’s economic growth and inflation stability. For businesses, this means that relying solely on labor expansion or cost-cutting won’t deliver sustainable results. Improving productivity is the key to maintaining profitability, controlling costs, and staying competitive in a global market where efficiency drives success.

A few Focus Areas to Boost Productivity

Optimize Processes
Apply lean principles to eliminate waste, reduce bottlenecks, and improve workflow efficiency.
Invest in Technology & Automation
Streamline operations with digital tools and automate repetitive tasks to free up time for higher-value work.
Upskill Your Workforce
Provide continuous training in digital skills, data analytics, and process optimization to enhance employee effectiveness.
Enhance Data-Driven Decision Making
Use analytics and predictive insights to allocate resources effectively and anticipate market changes.
Foster Innovation & Capital Investment
Invest in modern equipment, R&D, and sustainable technologies to increase output per worker and long-term competitiveness.

The Bottom Line

The Bank of Canada’s December decision wasn’t just about inflation and growth—it was a warning. Canada’s productivity problem is a long-term risk that could undermine competitiveness, fuel inflation, and constrain monetary flexibility. Addressing this challenge requires coordinated action: investment in technology, skills, and innovation—not just rate adjustments.

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Dr Kenneth Moodley LinkedIn or www.nikshen.com

Contact: kenneth@nikshen.com

Tags: #Bank of Canada #Supply Chain #Productivity #Optimization #Interest Rates #Kenneth Moodley

Publisher / CEO: Nikshen Global Solutions