Economic growth in Canada has been strong in recent quarters, but significant challenges remain and productivity levels are still well below those in the United States, a senior Bank of Canada official says.
Speaking to the Sherbrooke Chamber of Commerce, Bank of Canada deputy governor Sylvain Leduc said Tuesday that productivity growth could be increased by reducing the barriers that future fast-growing firms may face.
Leduc says a report from the World Bank noted that Canada is one of the easiest countries to start a business, but he added that it is more difficult for firms to grow beyond a certain point.
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He says the recent free trade deal with Europe and an agreement earlier this year to help reduce barriers to interprovincial trade are encouraging examples to help firms grow.
Leduc said that while about half of new firms close their doors within five years of starting, those that do make a name for themselves tend to grow rapidly and referred to them as “gazelles.”
“These young, transformative companies that are growing at dizzying speeds have a good chance of developing new technologies that increase productivity,” he said.
Leduc says the pace of economic growth is expected to slow over the next few quarters, but noted it should still exceed that of potential output.
“We therefore expect an increase in entry rates and a decline in business exits over the coming quarters,” he said. “Moreover, the contribution of new firms to increasing the productive capacity of the economy could give rise to a virtuous circle of growth.”
The Bank of Canada raised its key interest rate target last month for the second time this year following a strong start to the year for the economy.
However, governor Stephen Poloz signalled last week that the bank would take a more cautious approach to any future rate hikes.
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