Finance Committee on Nov. 5th, 2025

[The Chair, Liberal, Karina Gould]

Give a brief response.

[Tiff Macklem]

—and we think there'll be some resilience. Exports are very weak, but business investment is also very weak.

[The Chair, Liberal, Karina Gould]

Thank you, Mr. Leitão.

Mr. Garon, you have the floor for six minutes.

[Jean-Denis Garon, Bloc, Mirabel, QC]

Thank you, Madam Chair.

Governor and Deputy Governor, thank you for being here.

In the macroeconomic analysis of your monetary policy report, we see economic decline in some quarters. Therefore, we're in a period of economic downturn, high unemployment, investment shortfall and productivity breakdown. To some extent, everything seems to be going badly, except when it comes to household spending, which appears to be keeping the Canadian economy afloat.

What I wonder is, when everything is going badly, when there are fewer jobs, when productivity is slowing down, when household spending is driving the economy and interest rates are at the current level, should we be worried about mounting household debt and the risks that could pose in the quarters or years to come, over the long term?

[Tiff Macklem]

As you pointed out, in terms of consumer spending, so far it's been quite high. We're seeing more growth in the housing market.

We also see that household savings are quite high. Household debt is just as high in Canada, but it has been on the decline for some time now. Because they're saving a little more as they spend, households are able to keep spending.

As you suggested, with unemployment at 7.1% and the economic uncertainty, we think consumer spending will probably go down but remain positive.

In the short term, we will see sluggish economic growth, because exports and investment are down. Consumer and governance spending, however, are positive.

Next year, we expect that exports and investment will recover and the GDP will go up. However, that growth will be slow.

There are risks, of course. The structural adjustment could be harder than we think, and the U.S. could impose even more tariffs; that would weaken the economy even further and consumer spending would decline.

[Jean-Denis Garon, Bloc, Mirabel, QC]

Governor, you anticipated my next question.

I'm concerned about the Canada-United States-Mexico Agreement, or CUSMA. Next year, CUSMA is up for review with the Americans; it won't necessarily be a renegotiation.

As we know, we're dealing with an American administration that's hard to predict. They no longer respect institutions or the rule of law like they used to. I don't need to draw you a detailed picture here.

What do you think might happen with CUSMA's renewal, given that we're seeing a slight downturn in the economy and we're expecting some growth but it will be slow?

Where the government is concerned, it seems to be taking a long time to make a deal. I don't want to pass judgment on that today, but it seems they're relying heavily on CUSMA being some sort of safeguard that will always be there.

How much of a role does a full CUSMA renewal play in your growth projections?

[Tiff Macklem]

We're assuming in our forecast that the current U.S. tariffs will become permanent. If the agreement remains like it is now, the high tariffs on steel, aluminum, softwood lumber and automobiles will remain in place—

[Jean-Denis Garon, Bloc, Mirabel, QC]

I'm going to interrupt you before you finish, because my time is running out.

When I looked at your latest monetary policy reports, it seemed to me that you often made that assumption. You presented scenarios if the current tariffs were to remain in place. You even established a timeline. However, every time the bank has done that, that outcome hasn't come to be. As it turns out, a whole new slew of tariffs were added.

How realistic is that scenario today, and how likely is it that your predictions could come to be?

[Tiff Macklem]

That's why we do scenarios. We can't predict what the Americans will do. They've shown that they can change their minds on a dime. It's impossible to predict. My predictions are no more likely to come true than yours.

In a situation like this, we create scenarios. If you go back and look at our monetary policy report from July, you'll see three scenarios: The first scenario is based on the tariffs remaining in place, the second scenario has the tariffs going up—

[Jean-Denis Garon, Bloc, Mirabel, QC]

You decided not to use that method. You used a fixed tariff scenario. People feel that provides a little more certainty.

[Tiff Macklem]

Yes, we didn't redo the scenarios. They haven't changed much since then. We're keeping them.

[The Chair, Liberal, Karina Gould]

Thank you, Mr. Macklem and Mr. Garon.

Ms. Cobena, you have the floor for five minutes.

[Sandra Cobena, Conservative, Newmarket—Aurora, ON]

Thank you, Madam Chair.

Mr. Macklem, I'm going to quote a section in your most recent monetary policy report, which says, “Weak growth is likely in the second half of 2025”, and that “After contracting in the second quarter, GDP growth is estimated to be about 0.75% on average in the second half of the year.”

When we look at it on a year-to-date basis, is it fair to say that performance is basically neutral for our economy? Of course, the Prime Minister is promising Canadians he's going to be building the economy at unimaginable speeds not seen since the Second World War. I did a bit of research. It looks like Canada's GDP growth following the years of the Second World War was between 6% and 7%.

Based on your forecasts, when do you expect we would achieve that 6% to 7% GDP growth?

[Tiff Macklem]

Our forecast goes out about two to three years, and we don't achieve that. We have 1.2%, 1.1% and 1.6% in 2027.

[Sandra Cobena, Conservative, Newmarket—Aurora, ON]

What do you think the economy would need to achieve that 6% and 7% GDP growth?

[Tiff Macklem]

If we want much higher growth in the economy, we're going to need much higher productivity growth.

[Sandra Cobena, Conservative, Newmarket—Aurora, ON]

Okay.

When I read the news, I see auto manufacturers have relocated investment to the U.S., including some big names recently. Housing starts in Toronto specifically are at a 30-year low. Bottling companies are also moving operations to the U.S, and, of course, small businesses have been heavily impacted by the U.S. tariffs.

Given that, do you believe our economy is growing at unimaginable speeds like the Prime Minister mentioned?

[Tiff Macklem]

At what kind of speed?

[Sandra Cobena, Conservative, Newmarket—Aurora, ON]

Unimaginable...the fastest in decades.

[Tiff Macklem]

You can decide on the adjective. Our forecast is 1.2%, 1.1% and 1.6%.

[Sandra Cobena, Conservative, Newmarket—Aurora, ON]

In simple terms, for Canadians watching, that means our economy is not growing very fast. Is that fair to say?

[Tiff Macklem]

Yes. Our economy is not growing very fast. It has been hit with a major structural shock. As you indicated, growth in the second quarter was negative. The economy contracted 1.6%. That was largely as a result of a big drop in exports to the United States.

We think growth in the second half of the year—we're in November now, so a lot of that has already happened, but we don't have all the data yet—is going to be pretty modest at 0.5% for Q3 and 1% for Q4. That's really because, to get back to Mr. Garon's question, consumption growth is holding up and that's supporting growth, but exports and business investment remain weak. As you get into next year, we think there will be some recovery in exports and business investment, so growth will pick up.

Even in 2027, 1.6% growth is not particularly strong.

[Sandra Cobena, Conservative, Newmarket—Aurora, ON]

You did touch on my next question a little bit.

Your report mentions that the GDP downgrade reflects lost capacity and a productivity crisis, of course, not a surge of growth. When I think of lost productivity, that's not something that is easily restored. Oftentimes, when I think of a business that's capital-intensive, once they've moved operations to another country, it's very unlikely they will actually return, predominantly in manufacturing.

How do the lost capacity and the productivity crisis impact the overall growth of the economy?

[Tiff Macklem]

My point is really to highlight that this isn't a typical business cycle but a structural adjustment. Part of the message there is that it's going to take longer than normal. Rather than demand coming back and businesses having unused capacity so that they can bring workers back to work and increase production and everything bounces back, in a structural adjustment, sectors need to pivot. They need to invest in new things. They're going to be doing less of some things and they need to be doing more of other things, and that is going to take time. That's an important reason the pickup in the economy is relatively gradual.

[The Chair, Liberal, Karina Gould]

Thank you, Ms. Cobena. That concludes your time.

We'll continue with Mr. MacDonald for five minutes, please.