Canada’s labour productivity expanded by 0.9 per cent in the third quarter, rebounding from a contraction in the previous quarter,

Statistics Canada said on Wednesday. The third quarter’s growth marks the sixth quarterly increase in eight quarters, after

productivity stalled in the first quarter of this year and contracted by one per cent in the second quarter.

The increase was driven by a rebound in business output and a decline in hours worked. Productivity in goods-producing businesses increased by 1.6 per cent, up from a 1.3 per cent decline in the previous quarter, and services were up 0.3 per cent.

Labour unit cost growth rose by 0.3 per cent in the third quarter, down from 0.8 per cent in the second quarter.

Bank of Montreal chief economist Douglas Porter said the big story is the how the

revisions for gross domestic product for the last few years paint a better productivity picture than initially expected.

“In a word, the significant backward revisions of GDP in the past two years have left a much sturdier growth picture than first estimated, with a concomitant upgrading of productivity,” he said, in a note.

“Briefly, 2024 productivity was revised up to 0.7 per cent (from 0.0), 2023 to -1.4 per cent (from -2.1 per cent), and 2022 to 0.1 per cent (from -0.6 per cent)—each year was bumped up by a whopping 0.7 percentage points, a huge adjustment (and even a bit more than the GDP lift).”

The trade war with the United States has made Canadian policymakers and government renew its focus on Canada’s lagging productivity. Historically, Canada’s annual labour productivity growth has been on a downward trend since the late 1970s.

Since declaring the issue an “emergency” in 2024, the Bank of Canada has made several speeches on how Canada can boost its productiveness, including boosting competition in certain sectors, deregulation and investing in Canada’s workforce.

Desjardins Group economist LJ Valencia said Canada’s productivity is expected to improve over the medium-term, but trade uncertainty will still weigh on business investment.

“Looking ahead, the federal government’s new immigration policies External link. should slow population growth further, providing some room for productivity to rise in the future,” said Valencia, in a note. “Still, uncertainty due to the trade war should define the near-term trajectory of Canadian business investment and productivity, with the outcome of next year’s

CUSMA review being a potentially critical turning point.” Porter said while Canada is not a world leader in productivity, the revisions point to a backdrop that is “nowhere nearly as dismal” as what was first estimated.

“To be sure, this is still a fundamental issue to be tackled for the economy , and there are some encouraging signs that policymakers are indeed course correcting on a variety of fronts,” he said.

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