By David Ljunggren
OTTAWA, Feb 5 (Reuters) – Restructuring the Canadian economy to cope with U.S. tariffs, slower population growth and the rise of artificial intelligence will take years, and could be painful, Bank of Canada Governor Tiff Macklem said on Thursday.
Macklem urged policymakers and businesses to do all they could to adjust to the new challenges, saying Canada could not afford to fail.
“Historically, Canadian businesses have been cautious. This is a time to be bold – this is a structural change,” he told a press conference.
“Waiting for it to go away is not going to work. The faster you move, the more competitive you’re going to be.”
Ways in which firms could act include finding new markets and adopting AI, he said in Toronto.
BANK SEES UNCERTAINTY IN OUTLOOK
Last week, the central bank held its key policy rate at 2.25% for the second time in a row and reiterated rates would stay put as long as the economy developed roughly in line with forecasts.
The bank, though, has stressed there is an unusually high level of uncertainty about its outlook, in part because of an unpredictable U.S. trade policy driven by President Donald Trump’s tariffs.
“We can’t chase every threat by President Trump. We’ll be chasing our tails … we don’t run a new simulation every time there’s a new threat,” Macklem said in a question-and-answer session after his speech.
In his prepared remarks, Macklem said it was hard to differentiate structural change from cyclical fluctuations, stressing the need not to misdiagnose economic weakness.
Lowering rates when the economy is weak could stoke inflation if the weakness was due to lower productive capacity rather than a cyclical downturn in demand. Overstimulating demand when the problem was structural could delay needed change, he added.
The bank’s forecasts suggest the Canadian labor force will hardly grow over the next few years, and Macklem said he was not expecting the jobless rate to trend higher.
While AI has the potential to boost the economy and hit the labor market, adoption by companies was modest, and “it may be a while before we see a significant impact,” he said.
(Reporting by David LjunggrenEditing by Rod Nickel)
