09:20 AM EST, 12/04/2024 (MT Newswires) -- Canadian productivity Wednesday fell 0.4% quarter over quarter in Q3, its ninth decline in the past 10 quarters, noted Bank of Montreal (BMO).

Thanks to the magic of upward revisions, productivity has improved modestly since pre-pandemic levels, with the five-year trend edging up 0.2% annualized, said the bank. Still, it continues to underperform the United States -- a gap that partially explains the divergence in economic outcomes between the two countries coming out of the pandemic.

Indeed, about eight months after Bank of Canada Senior Deputy Governor Carolyn Rogers called Canada's productivity problem an "emergency," it remains a key obstacle to a meaningful economic recovery, pointed out BMO.

Simply put, productivity drives economic growth and -- crucially for the current economic backdrop -- allows incomes to rise without pressuring inflation. Unit labor costs were up another 1.4% in Q3 alongside solid wage growth.

For Canadian businesses, this mismatch provides an opportunity to invest in productivity-enhancing measures, stated BMO. However, elevated labor costs are a headwind for attracting business investment from outside Canada, which is facing an additional drag from the highly uncertain trade environment with the US over the medium term.

Canada's productivity performance remains weak, although a bit less so thanks to revisions to previous years, added the bank.

Ultimately, there isn't much in Wednesday's data to change the Bank of Canada's big-picture view of inflation and the economy. BMO continues to expect a 25bps cut from the BoC at next week's policy meeting.