ISTANBUL
Bank of Canada Governor Tiff Macklem said the Canadian economy is at a crossroads as it faces deep structural changes from US protectionism.
Macklem noted in a speech on Thursday that these forces will not be temporary cyclical fluctuations but will transform the economic landscape.
He said: "The transition could be faster than we expect, particularly if trade uncertainties ease and businesses move more boldly to invest in new technology, markets and products.
"But it could also be more painful than we’d like—particularly if the trade situation darkens or other shocks disrupt the economy."
He added that the central bank must distinguish between cyclical weakness and structural changes to avoid policy errors like overstimulating demand.
Macklem stated that cutting interest rates to address structurally driven weakness could fuel inflation if productive capacity has declined.
The central bank recently held its key policy rate at 2.25% to assess these evolving economic conditions.