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 very painful, Bank of Canada Governor Tiff Macklem said on Thursday.
Macklem urged policy makers and businesses to do all they could to adjust to the new challenges, saying Canada could not afford to fail.
"As the Canadian economy works through this transition, growth will be modest. In time, the economy restructures and productivity and potential output pick up, but this will be measured in years, not quarters," Macklem said.
"The transition could be faster than we expect ... but it could also be more painful than we'd like - particularly if the trade situation darkens or other shocks disrupt the economy," he told the Empire Club in Toronto
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 that there is an unusually high level of uncertainty about its outlook.
Macklem said it was hard for the bank 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. And 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.
And while artificial intelligence 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 Ljunggren, editing by Dale Smith)
((Reuters Ottawa bureau; david.ljunggren@tr.com, opens new tab))
Keywords: CANADA CENBANK/
