Canada boosts productivity but still lags U.S.

Tue Mar 15, 2011 10:11am EDT
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By Louise Egan

OTTAWA (Reuters) - Canadian businesses squeezed more out of their workers last year than in any year since 2005, but they remained less competitive than their U.S. counterparts as Canada's strong currency pushed up labor costs.

Productivity -- a measure of how much is produced for each hour worked -- rose 0.5 percent in the fourth quarter of last year, beating the market forecast of a 0.2 percent gain and just slightly below the U.S. 0.6 percent gain.

For the year as a whole, Canadian productivity increased 1.4 percent but lagged the comparable U.S. rate of 3.8 percent.

"Productivity growth in Canada still trails that of the United States significantly," said Scotia Capital economists Derek Holt, Gorica Djeric and Sarah Howcroft in a note to clients.

"Given that Canada has fully recovered job losses suffered during the downturn, GDP growth will be reliant on productivity picking up going forward," they said.

Productivity has been weighing on the Bank of Canada as it keeps interest-rate rises on hold pending further proof the economic recovery is entrenched.

On March 1, the bank cited "Canada's poor relative productivity performance" and currency appreciation as the two main factors hampering an export recovery, which would rely heavily on U.S. demand. Central bank research shows the Canada-U.S. productivity gap widening in recent years.

The fourth-quarter data's impact on markets was overshadowed by the possibility of a nuclear catastrophe in Japan, which pushed the Canadian dollar to its lowest level since February 11 and caused stocks to fall.   Continued...

<p>Construction workers works on building new homes in Calgary, Alberta, May 31, 2010. REUTERS/Todd Korol</p>