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Canada’s economy and ability to compete internationally is being hampered by its businesses’ inability to sustain growth over the long-term, says a report released Monday by consulting firm Deloitte.

The study shows Canada’s productivity lags behind that of the United States in “virtually every instance,” including those industries that have been the cornerstone of Canada’s economy for decades — mining, oil and gas, financial services and manufacturing. The manufacturing sector was called out as a particularly poor performer, noting that U.S. productivity in the manufacturing has grown at a rate six times faster than that of Canada since 2000.

“We have to start having conversations about a national strategy that will allow us to be more competitive,” said Bill Currie, Deloitte Canada’s Vice Chair and Americas Managing Director.

[np-related /]

The study says Canadian businesses lack boldness and must do more to invest in research and development while also exploring export opportunities. It highlights the fact that Canadian businesses spend at only 65.2% the U.S. rate on machinery and equipment and that investment in Information and Communication Technology (ICT) in Canada’s manufacturing sector is at 66% of U.S. spending levels.

“A Canadian risk avoider really avoids risk,” says Mr. Currie. “They like government support to make investments. They are less entrepreneurial.”

The report says government can help induce Canada’s productivity and competitiveness by eliminating trade barriers and allowing greater foreign direct investment.

In turn, government must provide the right conditions by eliminating barriers to trade; encouraging competition and foreign direct investment and improving the immigration system and and adjusting Canada’s immigration system to deal with an aging population and looming skills shortage.

Canada losing steam in its push for an export boom

Wednesday, August 20, 2014

IAN McGUGAN

https://secure.globeadvisor.com/servlet/ArticleNews/story/gam/20140820/RBRIGLOBALMANUFACTURIN

It is now cheaper to make goods in once-high-cost countries such as Japan or Britain than in Canada, according to a new map of global manufacturing competitiveness.

For Bank of Canada Governor Stephen Poloz, who is counting on a surge in exports to help drive a stronger economy, the unflattering comparison points out the enormous challenge ahead. Canada's inability to produce internationally competitive products, outside of energy and raw materials, is proving to be a powerful drag on job creation, especially in Ontario.

Statistics Canada data show that only 1.7 million Canadians were employed in the manufacturing sector this year compared to more than 2.3 million a decade ago. Auto makers, in particular, have been pouring billions of new investment dollars into the United States or Mexico while giving this country the cold shoulder.

All of that aligns with the findings of the Boston Consulting Group's new report on the shifting economics of global manufacturing. It shows Canadian factories rapidly losing their ability to compete, especially in comparison to the emerging champions with the new world order - the U.S. and Mexico.

The consultants' report benchmarks the relative cost of making goods in the top export economies by comparing the cost in each country to levels in the U.S. On an index where U.S. costs are equal to 100, Canadian factories tick in at 115 - a rise of 11 points since 2004.

In contrast, Mexican factories score a bargain-basement 91 on the index, undercutting even China, which has seen its manufacturing competitiveness plunge in recent years, mostly as the result of soaring wages and energy costs.

Boston Consulting says its results underline a massive shift in the relative costs of making goods in various countries. Manufacturers have long regarded Asia, Latin America and Eastern Europe as the places to shop for sweet production deals, but changes in currency values, energy costs and wages are redrawing the map.

Brazil, for instance, is now a very pricey place to make goods, while Russia and Eastern Europe are just as expensive, if not more so, than the U.S. Meanwhile, once-doddering Britain has become the lowest cost manufacturer in Western Europe.

Boston Consulting divides most of the countries it surveys into one of four groups - those that are Under Pressure (such as Brazil and China), others that are Losing Ground (including France, Italy and Australia) or Holding Steady (such as Britain and India), as well as Rising Global Stars (U.S., Mexico).

Canada's situation doesn't fitneatly into the typology because it has encountered both negative and positive factors in recent years - rising wages that have been offset to some degree by falling energy costs. For that reason, the consulting group doesn't consider it a Losing Ground economy, although Canada's challenges are plain to see.

"Fundamentally, the story for Canada starts with the run-up in its currency," says Peter Dawe, a partner at the Boston Consulting Group in Toronto. The rise of the loonie in recent years has revealed serious structural problems with the country's manufacturing sector - notably, a lack of investment in productivityenhancing equipment and too much reliance on smaller, less productive factories.

The answer, he suggests, begins with developing a technologically expert work force that is suited to the demands of today's increasingly automated factories. Also important is attracting large-scale plants that are geared to serving more than Canada and encouraging management at Canadian companies to think of catering to a continental or even global market.

Will that be enough to turn around Canada's dismal performance in the global manufacturing race? It is, at the very least, a good place to start. Unless Canadian factories re-engineer their businesses, it's difficult to see how Mr. Poloz's export boom can ever take place.

Associated Graphic

A Canadian magic trick: wages that rise even if productivity doesn’t

An Econowatch special report on productivity (part three)

by Stephen Gordon Jun 5, 2013

https://www.macleans.ca/economy/business/a-canadian-magic-trick-wages-that-rise-even-if-productivity-doesnt/

If you spend any time reading about the Canadian economy, you have inevitably come across the Great Canadian Productivity Puzzle. Canada’s productivity is much lower than that of other countries, and we don’t really know why. Neither do we seem to be able to fix the problem. Policymakers have used every trick in the book to try to boost productivity, but the results have disappointed. Productivity growth matters because it drives up our purchasing power: if it lags, so will our standard of living. And yet—here’s where things get interesting—Canadians are far better off than one would tell looking at our dismal productivity performance over the past 20 years. How did we do it? In this six-part special report, Maclean’s in-house economist Stephen Gordon investigates the mystery. (With a contribution from Econowatch editor Erica Alini.)

Click here to see what’s coming up next and view past posts.

The trick

In part one of this series, I made the point that income growth is driven by productivity. In part two, I noted that Canadian productivity growth has stagnated since at least 2002. You’d think Canadian incomes would also have stagnated, but they haven’t. There’s another piece that has to be added to the productivity-income puzzle.

First, though, a quick recap.

From part one: wages track productivity.

From part two, Canadian labour productivity growth has been lagging that in the U.S.

But look how the real purchasing power of wages have evolved in the two countries.

Even though workers’ productivity has grown more slowly in Canada, our inflation-adjusted earnings have grown faster than in the U.S. How is that possible if wages track productivity? The answer is international trade.

It all goes back to commodity prices

If the price of a country’s exports rises relative to the price of the goods and services it imports, then purchasing power will improve, even if productivity levels stay the same. This shows up in the national accounts as a divergence between GDP, which is a measure of production, and Gross Domestic Income, which tracks aggregate income. (For a more detailed explanation of the distinction, see here. It involves beer and pizza.)

The reason why GDI started trending above GDP is the same reason wages have been growing faster than productivity: the surge of commodity prices, and of oil prices in particular, since 2002.

Another way of saying this is to look at producer and consumer prices. Rising commodity prices and international trade also put a wedge between producers’ prices (what firms receive when they sell the goods and services they produce—this is the price firms use to calculate the real wage that tracks productivity) and consumer prices (what consumers pay to buy stuff—the lower they are, the greater workers’ purchasing power). The reason why workers in Canada fared slightly better than in the U.S. is that producer prices here grew more rapidly than consumer prices, while the opposite was going on south of the border. Canadians’ buying power increased because the prices of the things we were selling grew faster than the prices of the things we were buying.

Yes, high oil prices are a good thing

Many commentators go on to conclude that the higher incomes generated by high commodity prices have given Canadians a temporary reprieve from the problem of low productivity growth. Jeffrey Simpson’s take on this is typical of this line of thought:

“Canadians are so damn lucky. We just dig and pump and cut and ship, and we never seem to run out. We just hope commodities prices remain high.
All those resources can be a fool’s game. Pumping and digging and cutting can keep the country comfortable, but they do little to address the country’s biggest challenge – a sagging competitive position. All those natural resources soak up capital; they usually don’t require much innovation or processing…
The old model of exploiting natural resources and shipping most of them (and everything else) to the United States will certainly keep Canada comfortable. But increasingly it won’t make Canada more productive at a time when the population is aging and immigration isn’t working. Without better productivity, forget real income growth. Without it, a comfortable stagnation.”

And here is Dan Gardner making a similar point along with a quote from Don Drummond:

“In June, when the Organization for Economic Cooperation and Development (OECD) released its latest report on Canada, it hit on a theme that is depressingly familiar to economists: Canada’s productivity growth is awful. And getting worse. ‘Canada’s overall productivity has actually fallen since 2002,’ the report noted, ‘while it has grown by about 30 per cent over the past 20 years in the United States.’ On a chart, the lines tracing Canadian and American productivity are essentially equal in the late 1980s but slowly diverge in the 1990s and then, in the last decade, an enormous gap opens.
If we don’t close that gap, our prosperity will slip away when the commodity boom goes. And the commodity boom will go. They all do.
So how do we improve productivity? ‘Twenty years ago we created a laundry list of the things we needed to change in the policy front and productivity would blossom,’ says Don Drummond, one of the country’s leading economists.
‘And you know, we changed most of them but productivity didn’t blossom.’ ”

I think these narratives have things backwards. In the next post, I will argue that the standard metric of productivity growth hasn’t slowed because of any particular failure of Canadian firms or Canadian policy—although there’s always room for improvement. Instead, the problem is how we measure productivity.

INDEX:

Part one: Intro to productivity (that thing Canadians are apparently so bad at)

Part two: Technical progress in Canada’s business sector: stuck in 1971?

Part three: A Canadian magic trick: wages that rise even if productivity doesn’t

Part four: Don’t blame Canada’s productivity woes on the commodity boom

Part five: Canada’s productivity crisis: misdiagnosed

Part six: Canada’s productivity measurement deserves a second look

Filed under: Productivity Productivity Report

Canada's trade gap swells, but import, export growth signals economic momentum

DAVID PARKINSON PUBLISHED MAY 3, 2018HTTPS://WWW.THEGLOBEANDMAIL.COM/BUSINESS/ECONOMY/ARTICLE-CANADAS-TRADE-GAP-SWELLS-BUT-IMPORT-EXPORT-GROWTH-SIGNALS-ECONOMIC/

Canada’s merchandise trade deficit swelled to a record $4.1-billion in March, as solid exports were outpaced by even stronger growth in imports – evidence of improving economic momentum despite the widening trade gap, economists said.

Statistics Canada reported that imports surged 6 per cent month over month, to a record $51.7-billion, driven by strong gains in autos and consumer goods. That outweighed growth in exports, which rose 3.7 per cent to $47.6-billion, their biggest gain in four months and their second-highest level on record.

On a volume basis, which excludes the impact of price and currency changes, imports rose 5.3 per cent while exports were up 3 per cent.

“The trade deficit deteriorated in dollar value terms, but for solid underlying reasons that reflect strength in the domestic economy alongside external strength,” Bank of Nova Scotia economist Derek Holt said in a research note.

“While the import boom is by itself a headwind to GDP, the associated implications for domestic demand suggest that the economy maintained healthy momentum in March,” Canadian Imperial Bank of Commerce economist Royce Mendes said.

Economists had anticipated a modest decline in the trade deficit from February’s $2.9-billion (revised from an originally reported $2.7-billion), thanks to the easing of severe rail-car shortages that had choked off grain exports earlier in the year. But they hadn’t foreseen the widespread strength in imports. Nine of 11 import sectors posted gains.

Exports also showed broad strength, with nine of 11 sectors rising.

The import side showed encouraging consumer demand, with passenger vehicles and light trucks up 13 per cent month over month, and consumer products up nearly 8 per cent. Economists said the strength reflects Canada’s continued strong labour market, as well as the acceleration in wage growth in recent months.

Meanwhile, gains in imports of computer equipment (up 13 per cent), medium and heavy vehicles (up 9 per cent), and industrial machinery and equipment (up 3 per cent) suggested a solid pickup in business investment. That’s an area the Bank of Canada has been watching closely for signs of improvement, as it speaks to the economy’s capacity to grow.

“The underlying details point to solid momentum across investment, materials demand and consumption,” Mr. Holt said.

Exports were lifted by the rebound in the agricultural sector, up nearly 15 per cent, reversing February’s 14-per-cent slump, as the sector bounced back from its temporary transportation problems. Exports of aircraft and other transportation equipment jumped 24 per cent, largely reflecting shipments under Canada’s contract to supply armoured vehicles to Saudi Arabia.

Statscan said that for the first quarter as a whole, import volumes rose 1.5 per cent, while export volumes inched up 0.3 per cent. The difference means that net trade likely subtracted about one percentage point from Canada’s annualized rate of gross domestic product growth in the quarter, economists said – the third straight quarter trade has been a drag on growth. Economists estimate that first-quarter real GDP growth was about in line with the fourth quarter’s relatively tame pace of 1.7 per cent, annualized.

Nevertheless, they said the positive implications of the growth in two-way trade suggest better times ahead for trade and the Canadian economy.

“Things were looking very good to end off the first quarter and transition to the second quarter,” Mr. Holt said. He added that the improvements in exports, which have been a sore spot for the Canadian economy since the middle of last year, “suggest that a soft patch across earlier months may be giving way to a better picture.”

One key factor that has been holding back export growth has been the deep uncertainty surrounding the North American free-trade agreement (NAFTA) talks. But even without a NAFTA deal nailed down, Canadian exporters may be starting to make up for lost time amid a healthy and growing U.S. economy, which is by far Canada’s biggest export market.

“Although a NAFTA agreement is looking closer to becoming reality, an agreement in principle is likely still weeks away. Nevertheless, we anticipate that improved momentum, stronger demand from the U.S., and a sub-80-U.S.-cent loonie should encourage a rebound in Canadian exports in the second quarter,” said Fotios Raptis, senior economist at Toronto-Dominion Bank, in a research report.