Can AI Help Close Canada’s Productivity Gap?

Innovation often builds quietly before it reshapes the economy in lasting ways. Artificial intelligence seems to be following that path in Canada, still in its early stages, but increasingly visible in ways that could influence productivity, growth, and how firms operate.

Recent data highlight why this matters. In the second quarter of 2025, labour productivity in Canada’s business sector declined by 1.0%, the steepest quarterly drop since 2022. The setback signals how persistent Canada’s productivity challenge has been. For years, the economy has struggled to generate more output per hour worked, leaving growth reliant on population gains and limiting the ability to raise wages without creating inflationary pressure. Senior Bank of Canada officials have gone so far as to call it a “national emergency,” underlining its importance for the country’s long-term economic resilience. Against this backdrop, attention is turning to whether AI can be part of the solution.

The change is not showing up in the aggregate numbers yet, but the groundwork is being laid. Business capital spending in information and communications technology is strengthening, with more companies directing resources toward automation, cloud platforms, and AI-enabled systems. Infrastructure is also expanding: Telus recently announced a new sovereign AI factory to provide Canadian enterprises with domestic AI computing power, a project that highlights how investment in digital infrastructure is accelerating. These moves are early, but they suggest that momentum is building below the surface.

Policy is reinforcing the trend. In December, the federal government launched the AI Compute Access Fund, committing up to CAD 300 million to help small and mid-sized firms access advanced computing resources. That was followed by the announcement of a CAD 2 billion sovereign compute strategy, aimed at strengthening Canada’s AI infrastructure and keeping pace with global competitors. At the same time, the Bank of Canada has committed in its 2025–27 strategic plan to responsibly integrate AI into its own operations, including forecasting and data analysis. The Bank’s growing use of these tools signals how seriously institutions are taking the shift.

Private-sector adoption is broadening as well. Manufacturing companies are experimenting with AI-powered predictive maintenance systems to improve efficiency, while logistics firms are deploying AI to optimize supply chains and anticipate demand more accurately. At the Cash Management Group, we have also integrated AI into our daily operations, using it to enhance analysis and improve performance. These examples show that adoption is moving from theory to practice, and that the benefits are beginning to reach a wider range of industries.

The transition, however, will take time. Many small and mid-sized firms still face barriers around cost, expertise, and uncertainty about how AI fits within their operations. For them, support programs such as the AI Compute Access Fund may prove critical. Broader adoption will also depend on solving infrastructure bottlenecks in computing capacity and energy supply, and on developing the skilled workforce needed to implement these systems effectively.

Canada’s productivity gap remains a significant challenge, and the latest quarterly decline is a reminder that progress will not come quickly. But the combination of government support, corporate investment, and institutional adoption is beginning to lay the foundation for change. If momentum continues and adoption broadens beyond early movers, AI could help turn a persistent challenge into a source of economic strength. For now, it is a story of preparation and transition rather than transformation, but one that may define Canada’s economic trajectory in the years ahead.

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