{"id":468888,"date":"2026-02-11T22:08:30","date_gmt":"2026-02-11T22:08:30","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/468888\/"},"modified":"2026-02-11T22:08:30","modified_gmt":"2026-02-11T22:08:30","slug":"the-bank-of-canadas-economy-things-get-worse-then-you-die","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/468888\/","title":{"rendered":"The Bank of Canada’s Economy: Things Get Worse, Then You Die"},"content":{"rendered":"

Canada\u2019s central bank just told business leaders to prepare for economic pain that will outlast most of them. Bank of Canada (BoC)<\/a> Governor Tiff Macklem declared the country\u2019s old economy dead last Wednesday in Toronto<\/a>, warning of \u201cpainful\u201d and permanent restructuring that will take decades. He\u2019s advocating for big gambles he admits may not work, asking households to pay higher prices for a payoff they likely won\u2019t live to see.\u00a0<\/p>\n

Canadian Economic Downturn Structural, Not Cyclical<\/p>\n

The BoC delivered an unusually political message this week: The country\u2019s downturn isn\u2019t cyclical, but structural. Cyclical issues are related to the business cycle, rising and falling with the natural booms and busts we\u2019ve all come to love and hate. Structural changes are permanent and require drastic changes for the economy to operate. The Governor attributes this shift to three forces: slowing population growth, a breakdown in US trade relations, and artificial intelligence.\u00a0<\/p>\n

\u201cThe impact of these forces on the Canadian economy will not be a temporary cyclical fluctuation. These are deep structural changes\u2026\u201d\u00a0BoC Governor Macklem.<\/p>\n

Canada\u2019s Era of Population-Driven Growth Is Over<\/p>\n

The country\u2019s era of population-driven economic growth is over, and they aren\u2019t just referencing recent immigration blunders. The Governor explains the labour force grew an average of 1.5% annually for the past 20 years, but the BoC sees it \u201chardly growing at all over the next few years.\u201d\u00a0<\/p>\n

BoC Declares US Relations Over, Pitches \u201cPainful\u201d Restructuring<\/p>\n

Compounding those pressures is the end of Canada\u2019s economy as we know it. \u201cCanada is at a crossroads. The era of rules-based open trade with the United States is over,\u201d warns the Governor. He doesn\u2019t just call for an end to the economic model the country has been using since 1989, but bluntly states it\u2019s over. No room for diplomacy, nor is this an issue that will pass with a new administration. A dramatic restructuring of supply chains and sourcing to non-US countries is the only option.\u00a0<\/p>\n

\u201cCanadian businesses are looking for new suppliers and new markets. This restructuring\u2026 will take some time,\u201d explains Governor Macklem. He warns that this transition will be disruptive and cost households more, and businesses that don\u2019t adapt risk becoming obsolete.<\/p>\n

AI Structural Change To Improve Productivity, Maybe<\/p>\n

The Governor positions the structural changes from AI as a potential Hail Mary, offsetting the others. \u201cWe expect efficiencies brought by AI will ultimately boost productivity,\u201d he explains. Further adding, \u201c\u2026the rise of AI has the potential to put the economy on a higher path and raise our standard of living.\u201d Fueling his optimism is a comparison to the internet and a 90s-style transition.\u00a0<\/p>\n

BoC Advocates For Structural Changes, Warns It May Not Work<\/p>\n

The Governor suggests this isn\u2019t a choice, but he also hedges by explaining it\u2019s not a clear win. \u201cThe Canadian economy could fail to restructure. If that happens, productivity and GDP growth do not recover\u2026,\u201d he explains.\u00a0<\/p>\n

His final warning suggests productivity won\u2019t rebound without a dramatic pivot. Incomes will stagnate. \u201cAffordability worsens.\u201d He warns we\u2019re entering a period of painful adjustment, whether we want to or not. Yeesh, and people say we\u2019re Negative Nellies.<\/p>\n

The Governor is correct on a number of issues, but left some glaring omissions around risk. It appears he\u2019s primarily trying to support a political narrative while using fear as a policy tool.\u00a0<\/p>\n

BoC Productivity Push Conflicts With Population Slowdown Warning<\/p>\n

The Governor attributes a growing population as a source of pain for the economy, but misses a few things. First, the slow growth is presented as a two-year freeze that ends this year. It followed a record high, with the impact on the 2074 population estimates amounting to the equivalent of a rounding error.\u00a0<\/p>\n

The math on the Governor\u2019s population growth claim is more disturbing than he realizes. Labour force growth of 1.5% annually, with ~2% GDP growth, means roughly 75% of Canada\u2019s economic \u201cgrowth\u201d was simply adding more people, not productivity. The quality of life erosion wasn\u2019t a recent mistake; it was the model.\u00a0<\/p>\n

BoC Declares End of US Relationship, But Reality Doesn\u2019t Match<\/p>\n

Diversification is always smart, but it shouldn\u2019t be a synonym for delusion. Our relationship after a U.S.-led trade war has seen better days, but we don\u2019t just trade for fun. Our economies are highly integrated to an extent that would surprise the vast majority on both sides of the border.\u00a0<\/p>\n

A cross-border energy grid and integrated defence agreement make separation nearly impossible. Under Canada\u2019s Defence Production Sharing Agreement (DPSA), US military contractors are considered domestic for sourcing. South of the border, the US Defence Production Act (Title III) grants Canadian firms the same privileges. If the actual end of the rule-based order were here, both countries would have a lot more to worry about.\u00a0<\/p>\n

Recent US polling also indicates the trade relationship will play a major role in the country\u2019s midterms<\/a>, presenting a threat to the American President\u2019s powers. Losing the midterms would effectively turn the US administration into a lame duck, killing the very trade war Macklem claims is permanent.<\/p>\n

Those are just two of the reasons the end of that relationship might not be over, despite the best efforts of policymakers to get taxpayers to fund a global re-wiring for a handful of large companies.\u00a0<\/p>\n

The AI Gamble: BoC Advocates For Big Bets On\u2026 They Aren\u2019t Sure<\/p>\n

AI is a guaranteed structural change, but the Governor seems less confident about his AI benefits than he is about declaring the need to overhaul the country\u2019s sourcing. The optimism is based on vibes, not real data. The BoC admits productivity gains may take \u201ca while\u201d to materialize. Meanwhile, in the same speech, the Governor attributes elevated youth unemployment to AI eliminating entry-level jobs.<\/p>\n

His optimism relies almost entirely on the internet analogy of things just working out, before flip-flopping on the impact on jobs. He suggests no material impact on hiring, while simultaneously attributing the elevated youth unemployment rate to adoption.\u00a0<\/p>\n

\u201cSo far, we are not seeing much impact of AI in the labour market either,\u201d explains the Governor. Later adding, \u201cthe flip side is we may be seeing some early evidence that AI is reducing the number of entry-level jobs in some occupations.\u201d<\/p>\n

There\u2019s also the small matter of failing to directly acknowledge AI\u2019s productivity growth isn\u2019t net positive in the short-term. There will be a period where AI\u2019s productivity accelerates the productivity of some, while replacing the jobs of others. In our interview with former BoC Governor Stephen Poloz<\/a>, he suggests that up to 30% of workers will require retraining due to this disruption.\u00a0<\/p>\n

BoC Warns Canadian Economy Is In Crisis, Upgrades GDP Forecast<\/p>\n

The crisis narrative becomes even more suspect when you consider the numbers. The BoC speech is a case study in why central banks should avoid politics. Governor Macklem paints a picture of a crisis and proclaims the old economy dead\u2014yet the BoC upgraded its recent quarterly forecast between October and January<\/a>, and is forecasting stable inflation at 2% for years ahead. The mismatch between narrative and reality suggests fear is being used as a monetary policy tool.\u00a0<\/p>\n

The BoC is stuck trying to stimulate business investment while defending the inflation target. Lower rates have failed to stimulate investment, while the central bank\u2019s preferred rate of inflation remains sticky on the high end of its target. They\u2019ve already tried dismissing their own preferred inflation measure, \u00a0claiming inflation isn\u2019t a number, but more of a feeling<\/a>. Nice try.\u00a0\u00a0<\/p>\n

Fear as a monetary policy tool is counterproductive. The vast majority of Canadians are employed at small and medium businesses (SMBs), despite the framing of policymakers. They aren\u2019t politically connected mega firms that can ask for a taxpayer bailout when things go wrong. They need to be comfortable to make major investments, not told they need to make large bets on overhauling their supply chain overseas and replacing employees with AI.\u00a0<\/p>\n

But don\u2019t take my word, the BoC understands this. \u201cUncertainty is still causing firms to hold off on new investment plans and to conservatively manage their finances, among other actions,\u201d explains the BoC in its Business Outlook Survey.<\/a> Am I the only one who reads these things?<\/p>\n

When The BoC Gambles Their Friends Win & You Lose<\/p>\n

The Governor\u2019s plan has another problem: you won\u2019t live to see it work, as it hinges on a currency shift. Canada trades in US dollars\u2014whether buying from China, selling lumber to Europe, or importing Mexican tortillas. Almost every country does, as the US dollar is the global reserve currency used to price and settle nearly all international trade.\u00a0<\/p>\n

Historically, strong cross-border trade with the US has helped keep Canadian inflation and interest rates low. Restructuring away from that means higher costs for everything priced in dollars\u2014which is virtually everything\u2014from BC lumber to Alberta oil to Manitoba wheat to Quebec dairy. The only way this changes is if the US loses its reserve currency status.\u00a0<\/p>\n

That kind of shift takes generations\u2014and historically only happens after devastating wars. The British pound held reserve status for roughly 80 years before the US dollar took over. Even optimistic estimates suggest 30 to 50 years\u2014and that\u2019s assuming the US actually collapses as the global economic anchor.\u00a0<\/p>\n

Let that sink in. If you\u2019re 35 years old today, you\u2019ll be ~85 years old when that pays off. You\u2019ll work your entire career paying structurally higher prices on everything. You\u2019ll retire into that system. You might die before Canada sees the benefit of this restructuring. That\u2019s a pretty big gamble because the US made a 4-year administration fumble that may change its policies on US-Canada trade this year.\u00a0<\/p>\n

The current BoC administration has had limited success doing its job, it shouldn\u2019t take on a side-hustle lobbying for large, disruptive political gambles. Small businesses are supposed to make massive, irreversible bets on restructuring supply chains and replacing workers with AI-driven productivity gains. The BoC\u2019s own Survey shows uncertainty is already causing firms to hold off on investment, and Macklem just added to that uncertainty.\u00a0<\/p>\n

The old economy is dead, but the Governor hasn\u2019t explained how the new one keeps Canadians fed, housed, and employed in the meantime. That\u2019s not negativity, it\u2019s the timeline he\u2019s selling.<\/p>\n

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