Structural challenges

The world is constantly changing. Factors like trade conflicts, technological advances and climate change can challenge the very foundations of the economy. We study these developments to keep our economy strong and resilient.

In an increasingly interconnected and dynamic global economy, Canada faces various structural challenges that require careful analysis. These challenges are influenced not only by external factors such as geopolitics, global trade dynamics and technological advancements but also by internal factors, including demographic shifts and environmental sustainability. Understanding and addressing these structural challenges is crucial for keeping inflation low and stable, fostering growth and ensuring the economic well-being of Canadians.

Among the issues we are studying:

  • the structural factors behind Canada’s slow growth in productivity
  • how immigration and population aging impact inflation through wages, productivity and housing demand
  • how artificial intelligence will transform the demand for skills and affect productivity
  • how tariffs impact the economy and inflation in Canada
  • the impact to Canada if the US dollar ceases to be the global currency used for trade and finance

Productivity

Productivity growth is a main factor behind economic prosperity. Yet, Canada has seen slow growth in productivity for a long time. Understanding both the underlying factors behind productivity and its likely evolution are important for identifying inflationary pressures.

The four Ds: deglobalization, demographic shifts, digitalization and decarbonization

The four Ds are reshaping the Canadian economy. They may lead to more persistent pressures on inflation and cause inflation to be more volatile. For these reasons and more, examining these four structural trends is important.

  • Deglobalization is led by shifts in trade alliances and the rearranging of supply chains. It affects how Canada interacts with the global economy.
  • Demographic shifts, including population aging and immigration, influence the labour market and the demand for housing.
  • Digitalization affects productivity and the demand for skills, particularly as businesses use artificial intelligence tools more widely.
  • Decarbonization is essential to become environmentally sustainable but creates opportunities and challenges for economic growth.

The international monetary and financial system

The international monetary and financial system is the set of rules, institutions and mechanisms that govern exchange rates, cross-border flows of capital and the use of international currencies to facilitate the exchange of goods and services between countries. This system is facing heightened uncertainty and potential structural change. Geopolitical tensions, shifts in trade policies and the evolving role of the US dollar as the dominant reserve currency are key factors influencing the system. Understanding the implications of these changes for Canada is critical.

Related research

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Why asking rents have surged in Canada since 2021

Sparks at Bank article Benjamin Straus
Renting has become significantly more expensive in Canada in recent years. Asking rents—those advertised for vacant units—rose sharply as demand grew faster than supply. As tenants move and sign new leases, changes in asking rents gradually spread to the average rents captured in the consumer price index.

Automation and Inequality: How Robots Shift Income Between Workers and Owners

Staff working paper 2026-34 Gabriela Galassi, Gaelan MacKenzie
This paper examines the direct effects of industrial robot adoption on workers and owners within Canadian private corporations. Adoption increases firm scale and per-worker payroll but does not decrease the labor share of value added. Conventional accounting of labor income earned by owners masks the impact on non-owner workers.
Content Type(s): Staff research, Staff working papers JEL Code(s): D, D2, D22, D3, D33, J, J2, J23, J3, J31, O, O3, O33 Research Theme(s): Structural challenges, Digitalization and productivity

Climate Change and Monetary Policy: Navigating Physical Risks

Staff analytical paper 2026-44 Tatjana Dahlhaus
Weather-related disasters can reduce output while increasing inflation, creating difficult trade-offs for monetary policy. This note reviews evidence on the macroeconomic effects of physical climate risks and uses a structural model to assess how more frequent and severe disasters could shape future monetary policy challenges.

Climate stress test of the global supply chain network: the case of river floods

This study investigates how extreme flood events can indirectly impact the global supply chain through production disruptions. The findings emphasize that the size of inventories is crucial; a lean-inventory system leads to faster shock propagation, higher losses, and fewer recoveries compared to an abundant-inventory system.

Canadian businesses’ use of AI: What the evidence shows

Sparks at Bank article Chanya Chawla, Crystal Arnburg
As businesses worldwide are adopting artificial intelligence to boost productivity, little has been known about how businesses in Canada are using it. Survey results from the Bank of Canada show that AI adoption remains at an early stage for many Canadian businesses. As well, businesses expect AI to affect capital spending and employment, but only gradually.
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Disclaimer

Bank of Canada staff produce research and analysis to support the work of the Bank and to advance knowledge in the fields of economics and finance. The research is non-partisan and evidence based. All research is produced independently from the Bank’s Governing Council. The views expressed in each paper or article are solely those of the authors and may differ from official Bank of Canada views.

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