GDP shrinks 1.6% in second quarter with exports and investment dragging growth
Canada’s productivity dropped at its fastest pace in more than two years, raising fresh concerns about the economy’s growth potential.
Statistics Canada reported that labour productivity fell 1 percent in the second quarter, the sharpest decline since the fourth quarter of 2022.
The agency said overall business output contracted 0.7 percent in the second quarter, ending a seven-quarter streak of growth.
Productivity weakened across 9 of 16 industries, with significant declines in utilities at 4 percent, wholesale trade at 2.6 percent, and manufacturing at 2.1 percent.
Statistics Canada added that manufacturing and wholesale trade were the main drivers of the fall, as uncertainty surrounding Canada’s trade with the United States disrupted activity.
Hours worked continued to rise but slowed to 0.3 percent in the second quarter, compared with 0.6 percent in the first.
The increase came mainly from service industries, while hours in goods-producing sectors remained largely unchanged.
The broader economy mirrored these pressures.
As reported by Statistics Canada, gross domestic product contracted at an annual rate of 1.6 percent in the second quarter. The decline reflected a 7.5 percent drop in exports and weaker business investment, particularly in machinery and equipment.
Bloomberg added that per-capita output has slipped back to 2017 levels.
Canada’s lagging productivity has been a longstanding issue.
Bank of Nova Scotia economist Derek Holt noted that productivity has posted gains in only six of the past 21 quarters.
In 2023, Bank of Canada senior deputy governor Carolyn Rogers described the situation as “an emergency,” pointing to a steady decline in Canada’s output compared with the United States, from 88 percent in 1984 to 71 percent by 2022, as reported by the Financial Post.
According to Bloomberg, structural challenges such as low capital investment, high immigration, and limited competition between firms have all been cited as factors weighing on productivity.
The outlet added that lower productivity limits an economy’s ability to expand without fuelling inflation, as rising wage costs erode business revenues and lead to higher consumer prices.
Prime Minister Mark Carney is expected to address these concerns during a cabinet meeting in Toronto this week.
Bloomberg reported that discussions will include potential infrastructure projects.
During his April election campaign, Carney pledged to boost Canada’s productive capacity by shifting federal spending toward investment rather than consumption.
