The Bank of Canada released several reports on Monday, which underpin their macro estimates, said Rosenberg Research.
The BoC published three detailed assessments on major economic questions: the neutral rates of interest in Canada and the United States, Canada's potential growth rate, and the potential growth rate globally.
Some of this information has already been included in past BoC reports, but reading the central bank's underlying logic is "illuminating," noted Rosenberg Research.
The key takeaway is that Artificial Intelligence (AI) is now a core macroeconomic variable rather than simply a market theme, stated Rosenberg. Productivity enhancements from AI are expected to lift growth rates and neutral interest rates.
The BoC sees large increases in growth expectations in the U.S. and modest ones globally -- Canada's central bank sees global potential growth at 3.1% over the next few years.
For Canada, the BoC sees domestic potential growth at just 1.2% this year and at 1.3% in 2027. AI and related investments are considered as factors likely to boost potential gross domestic product growth, but those positive effects are expected to be swamped by low population growth and the effect of U.S. tariffs and trade uncertainty.
All of this leaves the neutral rate of interest the same as a year ago, 2.25% to 3.25%, with a midpoint of 2.75%, pointed out Rosenberg.
The BoC's midpoint estimate for the U.S. neutral rate (3.0%) is notably below the median estimate in the Fed dot plots (3.125%). The BoC has been a bit more conservative in reflecting the prospect of a huge AI productivity boom.
For investors, the wider U.S.-Canada spread in the neutral rate and in near-term growth rates is a moderately bearish pair of pressures for the Canadian dollar (CAD or loonie), it added.
Over the medium term, Canada enjoys less structural upside to AI productivity and manufacturing effects, although some gains are inevitable. The AI boom might end up reinforcing the already-large difference between Canadian and U.S. growth prospects, according to Rosenberg.