Rethinking the AI question and Canada's productivity outlook: Insights from Ilan Kolet - August 11, 2026

Looking beyond the AI hype

For investors, AI is difficult to ignore. The Global Asset Allocation team, which manages more than $120 billion in multi-asset solutions for Canadian investors, evaluates the theme through an investment process that incorporates macroeconomic analysis, valuation, sentiment and bottom-up research. From a bottom-up perspective, Fidelity analysts continue to identify AI-related companies that may have the potential to exceed earnings expectations. As a result, the team remains invested in the theme while recognizing that positioning could evolve as new information emerges. At the same time, he noted that the more important question may not be which companies benefit from AI today, but what the technology ultimately means for productivity, employment and economic growth over the long term.

The long-term impact remains uncertain

When it comes to AI's long-term implications, Ilan was candid: no one truly knows how the technology's impact will unfold. Historically, major technological advances such as computers and the internet complemented workers and helped improve productivity. AI could follow a similar path. However, he noted that AI may prove more disruptive if it replaces certain types of work rather than simply enhancing them. That distinction could have meaningful implications for labour markets and corporate earnings. Despite those uncertainties, he described himself as an AI optimist and noted that the technology has improved his own productivity. He also pointed to history, where economists have often overestimated the negative effects of technological change while underestimating the opportunities it can create. Many occupations that are common today simply did not exist a generation ago. New technologies can create industries, skills and jobs that are difficult to anticipate in advance.

Canada's productivity challenge reaches a critical point

While AI may shape the future, Canada's more immediate challenge may be productivity. Canada's productivity gap relative to the United States is a long-standing issue that spans decades and is not tied to any single government or policy cycle. In his view, the situation has reached a critical point. He argued that part of the challenge stems from how capital has been allocated over the past decade. Historically, Canada's economy has benefited from investment in resource extraction and related infrastructure. More recently, however, capital increasingly flowed into housing rather than productivity-enhancing projects. The numbers illustrate the shift. Between 2014 and 2024, inflation-adjusted capital spending by Canadian oil and gas companies fell by 50%. Over the same period, the sector's share of total Canadian capital expenditure declined from roughly one-third to about one-tenth. Even a modest improvement from those levels, he suggested, could help improve Canada's growth trajectory.

Signs of renewed optimism

Despite these challenges, he sees reasons for cautious optimism. Ilan pointed to discussions with Fidelity's Canadian portfolio managers and analysts, where sentiment toward Canada appears to be improving. He also noted signs of increasing international interest in Canadian investments. Capital tends to flow to markets offering the most attractive expected returns, he said. For many years, Canada struggled to attract that interest, particularly within resource-related industries. More recently, however, there are indications that perceptions may be shifting. As a result, the Global Asset Allocation team currently maintains an overweight position in Canadian equities and the Canadian dollar.

What Canada has working in its favour

Canada possesses several enduring advantages. These include a highly educated workforce, a long history of resource development, strong property rights and a stable rule of law. He also pointed to policy initiatives intended to support long-term economic growth, including efforts to accelerate major infrastructure and development projects and reduce barriers to trade between provinces. The potential impact could be significant. He referenced International Monetary Fund estimates suggesting that fully removing interprovincial trade barriers could add the equivalent of an additional Alberta-sized economy to Canada's gross domestic product. More broadly, he emphasized that productivity-enhancing policies typically take time to appear in economic data, but can help establish a stronger foundation for long-term growth.

Canada's role in the AI economy

AI also raises questions about Canada's role in the technology's development and adoption. Canada has historically been more of a technology adopter than a frontline innovator. While the country has produced important innovations, successful adoption of proven technologies can also improve productivity and support economic growth. The challenge, he said, is speed. Canada has often adopted new technologies later than other markets. Reducing that lag could provide an additional boost to productivity over time.

Positioning portfolios for today's environment

Against this backdrop, the team continues to lean toward Canada and emerging markets while remaining roughly neutral on the United States. Within fixed income, positioning remains broadly similar to recent years. The portfolios are materially underweight global investment-grade debt, roughly neutral on Canadian investment-grade bonds and maintain an emphasis on credit and spread sectors. The team also holds inflation-protected securities to hedge upside inflation risks. Beyond traditional stocks and bonds, he highlighted the importance of a third category that includes alternatives and commodities. With inflation contributing to greater correlation between stocks and bonds, these investments may provide an additional source of diversification.

Why the Federal Reserve remains in focus

Although AI continues to dominate investment discussions, the development Ilan said he is watching most closely is the evolution of the U.S. Federal Reserve. He noted that new Fed leadership has signaled an interest in reducing the amount of guidance and communication provided to markets, representing a shift from the highly transparent approach that characterized much of the post-Greenspan era. There is also ongoing debate about whether AI could ultimately prove deflationary by reducing labour demand. While that remains a possibility, he noted that the evidence has yet to appear in economic data. For now, inflation in the United States continues to be difficult to bring back to target levels, particularly within housing-related components. Ilan noted that the Fed's dual mandate of price stability and full employment remains central and argued that policymakers should remain focused on those objectives rather than changing how inflation is measured.

Conclusion: Balancing uncertainty with opportunity