Two years after Bank of Canada senior deputy governor Carolyn Rogers sounded the alarm over the country’s productivity problem in a Halifax speech, Rogers examined whether the

artificial intelligence boom could help Canada “break the glass” during a fireside chat at the Rotman Productivity Challenge event.

In her conversation with former finance minister Bill Morneau at the University of Toronto’s Rotman School of Management, Rogers highlighted the key factors creating a drag on Canada’s productivity: lack of investments, especially in technology, interprovincial trade barriers and reduced competition.

“These things can create a vicious circle,” Rogers said, referring to 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.”

For example, 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, Rogers said.

“Low investment leads to low investment,” she said. “You do that for long enough; you become less competitive.”

On the other hand, greater investments can lead to increased productivity, bigger margins and the ability to invest further, Rogers said.

And this translates to a national scale, Rogers said, comparing Canada’s economy to one big company.

As Canada’s economy is mainly comprised of small and mid-sized businesses, it faces challenges that other countries, such as the United States, which have larger companies with greater scale and investments, do not have to worry about, she said.

“We have to figure out how to help small and mid-size businesses adapt to this change.”

However, as businesses around the world hedge their bets on AI, one major challenge that the technology and its role in the economy presents is the potential for increased inflation.

“Every economy has a speed limit that it can run at — we call it the potential central output,” Rogers said. “If it runs over that speed limit, the engine overheats, the car doesn’t function, you get the inflation.”

Rogers said 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.

U.S. President Donald Trump’s pick for the new Fed chair, Kevin Warsh, has said he believes AI could boost labour productivity, which could offset the cost of wage increases and potentially avoid raising prices for consumers.

Warsh and other proponents of AI believe the technology could “juice the economy” without significantly affecting inflation, Rogers said. However, other economists don’t see an AI-driven productivity boom resulting in growth without affecting inflation.

Rogers said she doesn’t think there’s a right answer to that debate, or that what happens in the U.S. will be the same in Canada.

However, there is agreement that AI “is going to be a transformational technology,” Rogers said.

“It is going to fundamentally change our economies. I think there’s even probably agreement (that) it’s going to add to potential,” she said. “The question is when and what’s going to happen in between.”

Rogers said there has not been any recent evidence of productivity changes so far in the hard data that the central bank measures, such as Statistics Canada national accounts. However, the soft data, such as surveys, indicate Canada is currently in a “low hire, low fire environment.”

While this can partly be chalked up to the general uncertainty businesses are facing, Rogers said it is also possible that this period of transition with emerging technologies could be affecting the labour market as well. She noted entry-level jobs, including data entry jobs, and youth employment are being affected, although these changes cannot be definitively attributed to the influence of AI just yet.

The central bank is taking into account the speed of AI-driven transition and how Canada will adapt to it, including the emergence of new jobs and the departure of others, Rogers said.

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“Monetary policy is fundamentally about tradeoffs,” Rogers said, adding that it is the job of the central bank to support the economy during structural changes and periods of adjustment.

“What we don’t want to add to a period of disruption and transition is inflation.”