OTTAWA (Reuters) – Canadian companies must follow through on business investment plans, building on changes in the COVID-19 pandemic, or risk losing out to competitors south of the border, a said Bank of Canada Governor Tiff Macklem on Wednesday.

FILE PHOTO: A sign is pictured outside the Bank of Canada building in Ottawa, Ontario, Canada May 23, 2017. REUTERS/Chris Wattie/File Photo

Corporate balance sheets are strong, consumer demand is high and U.S. demand for Canadian exports is growing, with business investment intentions at their highest level since 1999, Macklem told a business audience.

“It is imperative that Canadian companies follow through on these plans or risk losing to American competitors,” he said. “For the economy as a whole, investment is essential for non-inflationary growth.”

The Canadian dollar was trading up 0.3% at 1.2675 per greenback, or 78.90 US cents.

Macklem reiterated that interest rates must rise to combat “too high” inflation. The central bank signaled last month that it would start raising rates soon, saying the economy no longer needed pandemic-level supports.

Despite a stronger job recovery than in the United States, productivity growth in Canada continues to lag. This is due to both more public health restrictions and lower business investment, Macklem said.

“The question is, does COVID-19 give us an opportunity to change course? I think so,” Macklem said, pointing to the increase in digital investments and remote working due to the pandemic.

The central bank expects business investment to grow faster in Canada through 2023 than in the United States. This should lead to long overdue productivity gains.

“In our forecast, productivity growth in Canada is approaching, but still lagging behind, productivity growth in the United States,” Macklem said.

Companies can help by investing in new technologies that make their operations and workers more productive, Macklem said. It would also help address labor shortages in many industries.

The Bank of Canada is expected to raise its key rate to 0.50% in March from a current record low of 0.25%, with money markets betting on six hikes in total this year. [BOCWATCH]

Reporting by Julie Gordon in Ottawa; Editing by Alex Richardson