BoC Governor Macklem says restructuring the Canadian economy to cope with US tariffs, slower population, and the rise of AI will take years, and could be very painful
Importance
Level 1
- Macklem urged policy makers and businesses to do all they could to adjust to the new challenge, saying Canada could not afford to fail.
- As the Canadian economy works through this transition, growth will be modest.
- Adding it all up, economy is forecast to grow—but it’s soft growth. Expect GDP growth to average only about 1¼% over the next two years.
- Have to be careful not to misdiagnose economic weakness. Monetary policy should not try to compensate for lost supply.
- Lowering interest rates in the face of weak economic activity risks stoking future inflation if the weakness is due to lower productive capacity rather than a cyclical downturn in demand.
- And there is also a risk that overstimulating demand when the problem is structural could delay needed structural change.
- In short, will be working hard to identify and assess the relative importance of cyclical and structural changes. Through it all, 2% inflation target will remain our ultimate policy beacon.
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