OTTAWA — Canada’s miserable streak of declining productivity ended in the fourth quarter, a glimmer of hope that the country’s companies can generate growth without the help of outsized levels of immigration. 

The headline: Statistics Canada reported labour productivity—economic output per hour worked—increased 0.4 per cent in the fourth quarter, the first increase since the start of 2022 and only the second since the middle of 2020. Hours worked were essentially unchanged over the final three months of last year, while gross domestic product increased by 0.4 per cent. 

Why it matters: Productivity is a proxy for economic strength because it measures how much wealth a country can generate with existing resources. It’s become an acute issue for Canada because its population is aging, shrinking the labour pool and thus compromising our ability to generate enough growth to support the quality of life to which we’ve become accustomed. 

American exceptionalism: Stagnant productivity is a problem for many rich countries, with one notable exception. The U.S. appears to be experiencing a productivity miracle akin to what happened there during the IT boom of the mid-1990s. According to Statistics Canada, labour productivity in the U.S. grew in five of six quarters through the end of 2023, including a 0.8 per cent jump in the fourth quarter.  

Silver lining: Faster productivity generally requires vibrant business investment, which has slumped recently in Canada amid higher interest rates, persistent inflation, weaker economic growth and an uncertain outlook. 

The Bank of Canada opted to leave borrowing costs unchanged today because inflation is sticky. And while one of the things that has troubled the central bank is outsized wage increases, Statistics Canada reported that unit labour costs declined in the fourth quarter for the first time in 13 quarters. That could ease the central bank’s worries about inflation and open a path to rate cuts. 

Where to from here: A lacklustre commitment to innovation and weak productivity has been an issue in Canada for decades. A relatively liberal approach to immigration and various oil booms have helped mask the problem, but those approaches to growth are likely at their limits. The U.S. shows that productivity bursts are possible. Maybe Canada’s leaders, executives and investors will figure out a way to tag along.