Canadian Competitiveness and Net Exports

December 10, 2008

Canadian productivity, that is output per hour worked, has failed to rise in any of the last six calendar quarters, which is a record streak going back at least to 1981. Productivity fell 1.3% in the year to 3Q08 and by 0.3% per annum in the two years between 3Q06 and 3Q08. U.S. competitiveness, by contrast, rose 1.9% over the last four quarters and at a 1.7% per annum rate between 3Q06 and 3Q08. U.S. competitiveness vis-a-vis Canada gained advantage from better growth in productivity and from an appreciating Canadian dollar. Between the third quarters of 2006 and 2008, unit labor costs advanced 7.7% per annum in Canada when expressed in U.S. dollar terms but by only about a fourth as much, 2.0%, in the United States.

The erosion of Canadian competitiveness has been associated with worsening net exports. Real exports of goods and services fell 5.6% in the year to 3Q08, almost five times faster than the 1.2% drop in real imports of goods and services. In the national income accounts, net exports produced a 6.3 percentage point drag on GDP growth during the year to 3Q08, limiting real overall economic expansion in that period to just 0.5%.



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