Canada needs to address productivity: OECD

Canada must tackle its low productivity now that it has largely escaped the most severe challenges facing many countries around the world, the head of the Organization for Economic Co-Operation and Development (OECD) told an international conference on Monday.

“The great challenge for Canada is productivity,” Angel Gurria, secretary-general of the global agency, told the 16th annual International Economic Forum of the Americas. “Productivity has been lower in Canada than it should be, and obviously if Canada is going to maintain its competitiveness as it moves into more manufacturing and more services, it needs to be more competitive.”

Gurria didn’t provide any specific prescriptions to remedy the persistent problem. He said Canada is doing better than other countries because of the surpluses it enjoyed for a decade before the financial crisis in 2008, and subsequent efforts to reduce the deficit and accumulated debt. It now has the stability of a majority government, when so many other countries face years of caretaker or unstable political leadership.

Chronically high unemployment across most OECD countries is making it hard for politicians because there are no quick-fix solutions, he said.

About 50 million are unemployed in OECD countries, about 13 to 14 million more than before the crisis. Youth unemployment averages 20 percent. But it is 30 and 40 percent in some countries.

Governments can’t change direction, however, despite weak numbers in any given month and stubbornly high unemployment, Gurria said.

“We can’t be dealing with economic policy out of the seat of our pants because the numbers of one week,” he told the four-day conference. “It’s about trends, it’s about averages and it’s about policies that will stay the course.”

The Bank of Canada’s senior deputy governor told the conference that central banks around the world have made progress in reforming the global financial system by creating a counter-cyclical capital buffer.

“The Bank of Canada played a leading role in the development of the buffer, which provides for additional capital to be built up during periods of excessive credit growth in anticipation of a future economic downturn,” said Tiff Macklem.

He said the focus is now turning to the issue of shadow banking, or market-based financing to strengthen the resilience of the financial system.

Central banks have a key role to recognize risks and prioritize them. But to do this effectively, “we need to raise our game,” he said.