Finance Committee on Nov. 5th, 2025

[The Chair, Liberal, Karina Gould]

Good afternoon, colleagues. We will get started.

I call this meeting to order. Welcome to meeting number 12 of the House of Commons Standing Committee on Finance.

Before we begin, I would ask all in-person participants to read the guidelines written on the updated cards on the table. These measures are in place to help prevent audio and feedback incidents and to protect the health and safety of all participants, including the interpreters. You will also notice a QR code on the card, which links to a short awareness video.

Pursuant to Standing Order 108(2), the committee shall commence its study of the Bank of Canada's report on monetary policy.

I would like to take a moment to welcome our witnesses and our guests today.

We have the Governor of the Bank of Canada, Tiff Macklem, and the senior deputy governor of the Bank of Canada, Carolyn Rogers, with us.

Mr. Macklem, you will have five minutes to begin.

[Tiff Macklem, Governor, Bank of Canada]

Thank you, Chair.

We're very pleased to be back at this committee to discuss our recent policy decision as well as our outlook for the Canadian economy, which we published in the monetary policy report last week.

Last week, we lowered the policy interest rate 25 basis points, bringing it to 2.25%. This was our second straight cut and reflects ongoing weakness in the Canadian economy and contained inflationary pressures. We also published our outlook for the Canadian economy, and in this context, we have four main messages.

First, U.S. tariffs and trade uncertainty have weakened the Canadian economy. We expect very modest growth through the rest of this year with some pickup next year.

Second, while this weakness is restraining price increases, the trade conflict is also adding costs, and that is putting some upward pressure on inflation. We expect those opposing forces to roughly offset, keeping inflation close to our 2% target.

Third, to support the economy through this period of adjustment, we have lowered our policy interest rate by 100 basis points since the start of the year.

Finally, the weakness we're seeing in the Canadian economy is more than a cyclical downturn. It's also a structural transition. U.S. trade restrictions have diminished Canada's economic prospects. The structural damage caused by tariffs is reducing our productive capacity and adding costs. This limits the ability of monetary policy to boost demand while maintaining low inflation.

Let me turn now to economic conditions. While U.S. trade policy remains unpredictable, its impacts are becoming clear.

Canada's gross domestic product, or GDP, contracted 1.6% in the second quarter as tariffs and uncertainty reduced exports and business investment. U.S. trade actions are having severe effects on targeted sectors including autos, steel, aluminum and lumber. Household spending was resilient in the second quarter, with strong consumer spending and a pickup in residential investment.

The labour market is soft. Employment gains in September followed two months of sizable losses. Job losses have been concentrated in trade-sensitive sectors and hiring has been weak across the economy. The unemployment rate remained at 7.1% in September, and wage growth has slowed.

In the second half of this year, GDP growth is expected to resume, but remain weak, averaging about 0.75%. It should then pick up on a quarterly basis in 2026 as exports and investment recover, and average about 1.5% by 2027. This implies excess supply is only taken up gradually.

Consumer price index, or CPI, inflation was 2.4% in September, slightly higher than the bank had anticipated. The bank's preferred measures of core inflation have been sticky around 3% but upward momentum has dissipated. Looking at a broader range of indicators, underlying inflation looks to be around 2.5%. The bank expects inflationary pressures to ease in the months ahead and CPI inflation to remain near 2% over the projection horizon.

If the economy evolves roughly in line with our outlook, the governing council sees the current policy rate at about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment. We will be assessing incoming data carefully relative to the bank's outlook. If the outlook changes, we are prepared to respond.

For many months we have been stressing that monetary policy cannot undo the damage caused by tariffs. Trade friction means our economy will work less efficiently, with higher costs and less income. Even as economic growth recovers, the entire path for GDP is lower than it was before the swerve in U.S. trade policy. Monetary policy can help the economy adjust as long as inflation is well controlled, but it cannot restore the economy to its pre-tariff path.

I will add that there are things the country can do to get on a higher path. We don't need to accept a lower standard of living. Our focus at the Bank of Canada is ensuring Canadians can continue to have confidence in price stability through this period of global upheaval.

With that, I will be very pleased to take your questions.

[The Chair, Liberal, Karina Gould]

Thank you so much, Mr. Macklem.

With that, we will begin with Mr. Hallan from the Conservatives for six minutes.

[Jasraj Singh Hallan, Conservative, Calgary East, AB]

Thank you, Chair.

Governor and Deputy Governor, thank you for being here.

Governor, the bank recently updated its outlook for GDP. It's below 2% now for economic growth. As we've seen, the Prime Minister promised to have the fastest-growing economy in the G7. Given this new adjustment the bank made, do you think the other G7 countries will outpace Canada in economic growth?

[Tiff Macklem]

Certainly I would agree that our forecast is for very modest growth, with the second half of this year averaging only 0.75%. We do expect it to pick up, but as I indicated in my remarks, this is a structural adjustment and that's going to take some time. I don't have all the G7 forecasts in front of me, but we're not going to be the fastest-growing economy in the G7 over the next year.

[Jasraj Singh Hallan, Conservative, Calgary East, AB]

That's very fair. I would agree with you.

Deputy Governor Rogers, over a year ago you basically alerted everyone here that it was a break-glass emergency when it came to our productivity. We've seen around $54 billion in foreign investment leave Canada. Businesses are shutting doors. We see it in some of our ridings. We get those emails from constituents.

At a time when Trump is coming for our jobs, do you think the government has done enough to reverse this break-glass emergency, or have things gotten worse since you said that?

[Carolyn Rogers, Senior Deputy Governor, Bank of Canada]

I gave the speech you're talking about in 2024, so it predated the swerve to protectionism by our U.S. trading partner—our biggest trading partner. I guess the simplest way to put it is, if we had some urgency for fixing our productivity in 2024, we certainly have it now.

Like you, we're digesting all of the measures in the budget. We generally agree with the diagnosis that our country is in need of some productive investments. On the whole, we think a budget that invests in improving our country's productivity is a good budget. As for the specific measures, those are for you and your colleagues to assess.

[Jasraj Singh Hallan, Conservative, Calgary East, AB]

In your opinion, though, do you think we were ready for this tariff war? Would we have been in a better position if we were better prepared?

[Carolyn Rogers]

One of the points in the speech was that an improvement in our productivity would help buffer our economy from a variety of shocks. One of them would be a trade shock.

[Jasraj Singh Hallan, Conservative, Calgary East, AB]

Governor, last week you said in your press conference, “What's most concerning is that unless we change...things, our standard of living as a country...is going to be lower than it otherwise would have been.”

I'm not sure if you've seen the budget or not, but in the budget that was released yesterday by the Liberals, they have a line in here that says, “If Canada's productivity growth had matched the U.S. from 2017 to 2023, the median income of a family with one child would be nearly $11,000 higher.”

Would you agree with this assessment from the budget?

[Tiff Macklem]

I can't speak to every number in the budget, but broadly speaking, yes, if we'd had U.S. productivity growth, the standard of living of Canadians would be much higher than it is today.

[Jasraj Singh Hallan, Conservative, Calgary East, AB]

Right. What do you think are the domestic factors that made you say that and that are impacting the Canadian standard of living today?

[Tiff Macklem]

What made me say that? I mean, there are really two issues here. We've had a long-standing productivity issue. That's why the senior deputy governor sounded the alarm. At that point, we'd gotten through COVID-19 and we'd gotten inflation down. It was time to get back to some of the longer-term issues, and that one was front and centre. A lot has changed in a year.

Last week, when I said our standard of living was lower, I was really referring to the fact that U.S. tariffs have fundamentally fractured our trade relationship with our biggest trading partner. That is a big, negative structural shock to the Canadian economy. It's going to destroy some capacity. It's going to raise costs. Monetary policy can help smooth that adjustment, but it can't undo the effects of tariffs. If we don't do something about it, our standard of living in Canada will be on a permanently lower path.

As I intimated in my opening remarks, there are things we can do about it in the country. We need to improve our competitiveness. We need to improve our productivity. We need more investment. Those are the kinds of positive structural reforms that could bend the path back up.

[Jasraj Singh Hallan, Conservative, Calgary East, AB]

When we put this in the perspective of an average, everyday Canadian, we've seen today that Canadians are not doing well. We can all agree on that, I believe. In one of your previous visits here, we talked about food bank usage. Food bank usage has doubled since 2019. More and more Canadians are visiting a food bank.

Can you put into perspective the productivity crisis that we are in right now in terms of our standard of living? How does that impact Canadians?

[The Chair, Liberal, Karina Gould]

Give a very brief response, please.

[Tiff Macklem]

It's actually a very important question. We're hearing what you're hearing. Canadians' biggest concern is the cost of living. If you ask economists what the biggest problem is, they'll say it's productivity. It's actually the same thing. Why do I say that? I mean, how are we going to make things more affordable? The way to make things more affordable is that we have to have more income. To get more income, we need more productivity.

[The Chair, Liberal, Karina Gould]

I'm sorry, Governor. I have to interrupt you.

[Tiff Macklem]

If we have more income, everything is more affordable.

[The Chair, Liberal, Karina Gould]

Thank you, Mr. Hallan.

Mr. Leitão, you have six minutes.

[Carlos Leitão, Liberal, Marc-Aurèle-Fortin, QC]

Thank you, Madam Chair.

Mr. Macklem and Ms. Rogers, thank you for being here today.

Governor, I would start by asking you to finish what you were saying just now on the cost of living issue.

[Tiff Macklem]

It is a really important point. Look, inflation was high in 2022. Inflation is back down—it's been around 2% for two years—but the price level is still higher. It has a long tail. Canadians are feeling that. They're feeling this in the cost of living. Our job is to keep inflation at about 2%. We're not going to lower the price level. Lowering the entire price level would have a very negative effect on the Canadian economy. You'd have to have a big recession, and nobody wants that.

The question is, how do you make things more affordable? You have to grow the top line. If there's more income, then things are more affordable. How do you get more income? Well, you need to be more competitive. You need to be more productive. Businesses need to sell more products. They need to create more jobs. Productivity is what pays higher wages. Those things will increase incomes and make things more affordable.

To go back a bit, economists call it productivity. Canadians call it cost of living. It's the same thing.

[Carlos Leitão, Liberal, Marc-Aurèle-Fortin, QC]

Thank you, Governor.

Yes indeed, that's an important distinction that one has to make between inflation, which is a change in prices, and the cost of living, which is the level of prices. As you pointed out, nobody should be hoping for a drop in prices. If prices decline, generally speaking, that's called deflation, and that's not good. That's not good at all. The way to improve affordability and the standard of living is to raise incomes. You raise incomes through greater productivity so that businesses can pay higher salaries.

You also mentioned that we are facing a structural adjustment. It's not just a cyclical change but a structural adjustment brought about by the trade shock, by the unpredictable and unjustified tariffs imposed by the U.S. administration. Perhaps you could tell us—take the time that you want—why tariffs in 2025 are a bad idea, generally speaking.

[Tiff Macklem]

Why are tariffs a bad idea? Canada and, in fact, the world have benefited tremendously by lowering tariffs. If we go back to the end of the Second World War, basically, until the last few years, tariffs have been coming down globally. Trade has actually been growing faster than GDP. That's been an engine of growth in the economy.

How does that work? It allows each country and each business to specialize in what they do best and then to buy, from other countries, things that other countries do best. You get more economies of scale. There's pretty clear evidence that you also get more innovation when you have more trade. Innovation spurs productivity growth and raises standards of living.

The U.S., under President Trump, has swerved dramatically towards protectionism. That's raising costs. That's actually going to hurt both of our countries. It's going to weaken growth in countries around the world, but Canada is disproportionately affected. We are a very open economy. We have 75% of our trade with one country—the United States.

To get back to a previous question, we've talked for a long time about diversifying our trade, but we haven't made much progress. Now it's pretty clear that we have to get a lot more serious about that. From a Canadian perspective, tariffs are going to.... Right now, we have very steep tariffs on steel, aluminum and autos, and we have trade restrictions on lumber. The overall tariff rate for Canada is still relatively low compared to other countries. It's about 6%, which is one of the lowest in the world, but our economy is just so much more integrated with the United States than other countries that we are being very much affected.

As I said, if we don't do something about it, our economy is going to grow. It's going to get back to growth, but it's going to grow along a lower trajectory.

[Carlos Leitão, Liberal, Marc-Aurèle-Fortin, QC]

That's right. That obviously has an impact on the labour market.

In your recent projection in the monetary policy report—the forecast for Canada, which is broadly in line with other forecasts—we have the domestic side of the economy, which I wouldn't say is doing well, but it's doing reasonably well. Consumption, domestic demand, is relatively robust. The weakness is on the external side, on trade.

[Tiff Macklem]

Yes, I would agree. Consumption has been holding up pretty well—