Governor Tiff Macklem talks about structural change in the economy and explains what it means for the Bank of Canada’s monetary policy.
Watch Governor Macklem speak to the Empire Club of Canada Read the full speech.
Canada is in a period of structural change
Canadians are living through a lot of upheaval. Open trade with the United States is over. Artificial intelligence (AI) is transforming the ways we work and live. And population growth has slowed due to aging and lower immigration. These deep structural shifts are reshaping our economy.
- US trade restrictions are making the economy less efficient, raising costs and lowering incomes.
- AI could raise living standards, but it could also impact many jobs.
- Slower population growth means fewer new consumers and workers to fuel the economy.
The economy is always adjusting to structural forces such as technological progress. But this process is often gradual, smooth and in the background. When structural change is faster and more prominent, as it is today, it can be disruptive for businesses and households. And while this type of structural change can bring benefits over time, it increases uncertainty because it is difficult to predict its full impact.
The adjustment has only just begun
We expect the Canadian economy to grow modestly over the next couple of years, with inflation staying close to the 2% target. This partly reflects temporary weakness from the effects of the trade conflict.
Our forecast also reflects the impact of structural change in the economy. The adjustment to structural change could be faster than we expect or more painful than we’d like. But it needs to happen—and our economy will be stronger as a result.
In response to US tariffs, Canadian businesses are looking for new suppliers and new markets. They’re importing less from the United States and buying more from elsewhere. They’re also exporting to the United States a lot less and selling a bit more to other countries.
Still, redirecting our international trade—and boosting our internal market—will take time.
Similarly, AI could eventually:
- improve Canada’s productivity—a measure of how efficiently the economy can produce things
- benefit Canadians through higher wages and less expensive, better products
At the same time, AI will likely affect jobs, at least during the adjustment period.
It’s too early to see a big impact from AI on productivity or employment. But the Bank of Canada will be watching the labour market closely as more Canadian businesses adopt AI in the coming years.
Structural change is a journey. It’s the transition between one steady state and the next—between Canada’s old economy and the new one taking shape.”
We’re helping the economy through the transition
The Bank is supporting the economy as it restructures. But there are limits to what we can do.
Monetary policy cannot offset the structural damage caused by tariffs. And it cannot target the hardest-hit sectors. But monetary policy can support demand overall, while keeping inflation low and stable.
How households, businesses and governments adjust to structural change will determine our future prosperity. And the Bank will be playing a supporting role along the way.
Monetary policy can’t change the destination. But it can help smooth the journey.”
Watch Governor Macklem answer questions from the media following his speech.