Structural change reshapes Canada's economy and policy limits

Canada is experiencing significant structural shifts driven by three key forces: the end of open trade with the United States, the transformative impact of artificial intelligence (AI), and a slowdown in population growth.

US trade restrictions are reducing economic efficiency, leading to increased costs and lower incomes.

AI holds the potential to elevate living standards but also poses risks to numerous jobs.

Concurrently, slower population growth translates to fewer new consumers and workers, dampening economic fuel.

While the economy constantly adapts to structural forces, the current pace and prominence of these changes are causing disruption for businesses and households, increasing uncertainty due to their unpredictable full impact.

The adjustment to these structural changes has only just commenced, with the Bank of Canada anticipating modest economic growth over the next few years and inflation remaining near its 2 percent target.

This forecast partly accounts for temporary weakness stemming from trade conflicts.

Canadian businesses are actively seeking new suppliers and markets in response to US tariffs, importing less from the United States and increasing exports to other nations.

AI is expected to eventually enhance Canada's productivity, leading to higher wages and improved products, though it will likely affect jobs during the initial adjustment phase.

The Bank will closely monitor the labor market as AI adoption increases.