Bank of Canada Official Weighs AI's Potential to Address Productivity Crisis
Bank of Canada senior deputy governor Carolyn Rogers has examined whether the artificial intelligence boom could help Canada overcome its persistent productivity challenges during a recent fireside chat at the University of Toronto's Rotman School of Management. Speaking with former finance minister Bill Morneau at the Rotman Productivity Challenge event, Rogers addressed the critical question of whether AI represents a solution to Canada's economic struggles or a potential driver of inflation.
Canada's Productivity Challenges
Rogers highlighted several key factors creating significant drag on Canada's productivity growth, including insufficient investment in technology, persistent interprovincial trade barriers, and reduced market competition. "These things can create a vicious circle," Rogers explained, referencing how Bank of Canada deputy governor Nicolas Vincent described productivity challenges in November. "They start to interact with each other, and they can exacerbate each other."
The senior deputy governor provided a concrete example of how productivity challenges can become self-reinforcing: "A business that hasn't invested for a while and, as a result, is seeing a decline in productivity, means it is less likely to afford any new investments." She emphasized that "low investment leads to low investment" and that sustained underinvestment ultimately reduces competitiveness.
The Investment-Productivity Connection
Rogers contrasted this negative cycle with the positive feedback loop created by adequate investment: "Greater investments can lead to increased productivity, bigger margins and the ability to invest further." She explained that this dynamic operates at a national scale, comparing Canada's economy to one large company.
The Bank of Canada official noted that Canada's economic structure presents unique challenges, with the economy primarily comprised of small and mid-sized businesses. This contrasts with countries like the United States, where larger companies with greater scale and investment capacity dominate. "We have to figure out how to help small and mid-size businesses adapt to this change," Rogers emphasized regarding technological transformation.
AI's Dual Economic Potential
As businesses worldwide increasingly invest in artificial intelligence, Rogers identified a major economic challenge: the technology's potential to either boost productivity or contribute to inflationary pressures. She explained the central bank's perspective using an automotive analogy: "Every economy has a speed limit that it can run at — we call it the potential central output. If it runs over that speed limit, the engine overheats, the car doesn't function, you get the inflation."
Rogers described the central bank's role as maintaining optimal economic performance: "It is the job of the central bank to keep the engine running steady at its optimal level to prevent both inflation and economic underperformance."
Diverging Views on AI's Economic Impact
The senior deputy governor referenced differing perspectives on AI's economic implications, noting that some economists believe AI could boost labor productivity sufficiently to offset wage increases without raising consumer prices. She specifically mentioned U.S. President Donald Trump's pick for Federal Reserve chair, Kevin Warsh, who has argued that AI-driven productivity gains could "juice the economy" without significantly affecting inflation.
However, Rogers acknowledged that other economists remain skeptical, believing that any AI-driven productivity boom would inevitably affect inflation. "I don't think there's a right answer to that debate," Rogers stated, adding that "what happens in the U.S. will not necessarily be the same in Canada."
Rogers concluded by emphasizing the need for careful economic management during technological transitions: "What we don't want to add to a period of disruption and transition is inflation." Her comments reflect the Bank of Canada's cautious approach to emerging technologies that could simultaneously address productivity challenges while potentially creating new economic pressures.
