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Economic News

Solid Productivity in Q4 2024 is Welcome News Ahead of the Tariff Storm

March 5, 2025
LJ Valencia
Economic Analyst

Highlights

  • Labour productivity increased by 0.6% q/q (non-annualized) in Q4 2024, following an upwardly revised Q3 growth print from -0.4% to 0.1%.
  • Real GDP for the business sector increased by 0.8% in the fourth quarter, double the pace of Q3 2024, driven primarily by output growth in services-producing sectors.
  • Hours worked in the business sector rose for the fourth consecutive quarter, with a 0.2% gain, albeit slower than the previous two quarters.
  • Unit labour cost (ULC)—the cost of labour per unit of output—of Canadian businesses slowed to a 0.2% gain in Q4 2024.

Comments

Labour productivity seems to have bucked the trend decline that has characterized the post-pandemic period, having come in positive or flat for the fifth consecutive quarter in Q4 2024. However, while ULC growth slowed down, high ULCs continue to erode Canada’s competitive position versus the US.

   

Looking ahead, monthly data for hours worked show early signs of accelerating in Q1. Assuming real GDP growth is in line with StatCan’s flash estimate, this could imply weaker productivity growth in Q1 2025. Wage growth also continues to rise, albeit more slowly, suggesting that unit labour costs may remain very high for businesses (graph 1). 

Implications

Productivity has been a story of serial disappointment for Canada, but today’s numbers are welcome news. In addition, productivity gains in Q4 coincided with strong GDP growth External link., solid labour market performance and inflation at or below the Bank of Canada’s 2% target. All in all, not a bad finish to the year.

 

Labour productivity was well positioned to continue rebounding in 2025. As the federal government’s new immigration policies slow population growth External link., particularly among less-productive newcomers to Canada, overall productivity growth should move higher. When combined with the reduced availability of labour, wages should rise as well, incentivizing businesses to invest more, further posting productivity. However, tariffs from the second Trump administration have added a great deal of uncertainty to the outlook and are likely to derail economic activity and business investment (see our latest publication External link. for more details). As such, the anticipated rebound in productivity this year could be restrained by circumstances beyond the control of Canadian policymakers.

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