Macklem warns of deep structural shifts for Canadian economy
Bank of Canada Governor Tiff Macklem highlighted profound structural changes impacting the Canadian economy, driven by US protectionism, artificial intelligence, and shifting demographics. He emphasized that how Canada responds to these forces will define its economic future.
A new economic landscape
Governor Macklem defined structural change as a permanent alteration to the level or composition of economic activity, distinct from temporary cyclical fluctuations.
He identified three converging structural breaks: the end of rules-based open trade with the United States, the rise of artificial intelligence (AI), and declining population growth.
These forces are transforming Canada's economic landscape, requiring governments, businesses, and individuals to adapt.
The Bank of Canada needs to understand these implications to deliver on its mandate of low and stable inflation, while governments must direct public and private investment to capitalize on economic strengths.
Macklem noted that while structural change is often gradual, the current pace is unusually rapid due to these converging factors.
Navigating trade friction and demographic shifts
The Governor detailed the impact of these changes on Canada's economic outlook for 2026 and 2027. US tariffs have weakened the economy, leading to sharply lower exports and a lower growth path, though some recovery is expected.
Business investment has been weak due to uncertainty but is anticipated to strengthen as firms adapt.
Overall GDP growth is forecast at a modest 1¼% over the next two years, reflecting both cyclical weakness and structural factors like increased trade friction and slower population growth.
The Bank's forecast suggests the Canadian labour force will see minimal growth after averaging 1½% annually for the past two decades.
Inflation is expected to remain near the 2% target, with tariffs exerting upward pressure while cyclical demand weakness acts as a constraint.
Macklem stressed that while the economy will restructure over years, not quarters, the transition could be uneven across sectors.
The imperative to restructure
Canada faces a critical juncture where failure to adapt to structural changes could have severe long-term consequences.
Without successful restructuring, productivity and GDP growth will not recover, making Canada a less attractive investment destination.
This would lead to weaker job and wage growth, declining incomes, and worsening affordability for Canadians.
The Governor's message is clear: leaning into this structural change is not optional, but essential for the nation's economic prosperity.