The Bank of Canada signaled on Thursday that it faces a demanding task in responding to structural forces it expects will permanently alter the nation’s economic trajectory. Senior deputy governor Carolyn Rogers said the coming five years may be as disruptive as the previous five, and outlined three entrenched shifts she believes will shape the period.
Speaking in Manitoba, Rogers identified increased trade protectionism by the United States, Canada’s more restrictive immigration stance and the broader adoption of artificial intelligence as durable influences. "When faced with a structural change ... we have to adapt. We have to adjust our thinking, our forecasting and our decisions to the new reality," she said. "My colleagues and I at the Bank are steeling ourselves for a tough job ahead."
Rogers warned that uncertainty stemming from U.S. trade policy is already weighing on business investment. That pullback, she said, will likely result in fewer jobs and weaker productivity growth. The Bank of Canada has indicated that tariffs from the United States on key Canadian imports could have a lasting negative effect on the country’s growth prospects.
On immigration, Rogers said a sharp drop in the number of people entering Canada would also subtract from economic momentum, and that the economy would need time to absorb lower immigration levels. Economists cited by the Bank note that reduced immigration could dampen demand for goods and services - an outcome that might ease housing pressures but could harm companies reliant on sustained domestic demand.
Rogers also addressed the dual nature of artificial intelligence: while it may offer substantial productivity gains, it is accompanied by heightened public anxiety over potential disruption. She highlighted the uncertain mix of outcomes as part of the broader environment of shocks the economy continues to face. "Canadians have faced a lot of economic upheaval over the past five years, and the next five may not be much calmer. Our economy is still facing shocks," she said.
The speech reiterated the Bank of Canada’s view on its monetary policy framework. The central bank and the finance ministry jointly review the 2% inflation target every five years, with the next review scheduled for this year. Rogers said the Bank does not believe the framework itself needs to change, but stressed that the way the Bank implements policy will have to evolve.
To meet that challenge, Rogers said the Bank is adapting its analytical toolkit. This includes improving the detection and assessment of supply shocks, making greater use of real-time data and preparing to provide scenario analysis rather than relying solely on a single baseline forecast for the economy. These shifts reflect the Bank’s attempt to respond to a more volatile and structurally altered economic environment.
Key takeaways:
- Bank of Canada anticipates persistent structural changes from U.S. trade protectionism, lower immigration and AI adoption, requiring adjusted policy implementation.
- Trade uncertainty is already reducing business investment, with potential consequences for jobs and productivity.
- The Bank plans to use more real-time data and scenario analysis to respond to a choppier economic environment.