stephen s poloz : release of the monetary policy report opening statement by mr stephen s poloz, governor of the bank of canada, at the press conference following the release of the monetary policy report, ottawa, ontario, 22 january 2020. * * * good morning. senior deputy governor wilkins and i are glad to be here to answer your questions about today ’ s interest rate announcement and our monetary policy report ( mpr ). before turning to your questions, let me briefly summarize the substance of governing council ’ s deliberations. you will recall that in october we were most occupied with the deteriorating global outlook. we could see clearly that this was affecting canada ’ s economy too — not only through exports and the manufacturing sector, but also through the effects of heightened uncertainty on firms ’ investment decisions. however, primarily because of a strong recovery in the housing sector and a healthy labour market, the canadian economy was demonstrating good resilience overall. quite a lot has happened during the past three months. global economic growth appears to have bottomed, as shown by an upturn in trade and manufacturing indicators. uncertainty remains elevated, of course, and in some ways has worsened, given rising geopolitical tensions in the middle east that had tragic consequences. but the phase one china - us trade deal and the pending ratification of cusma are positive developments that should lead to lower business uncertainty over time everywhere, including in canada. at the same time, however, indicators of the canadian economy have turned decidedly mixed. the national accounts data for the third quarter of 2019 showed a significant slowdown, as we expected, and monthly gdp data have extended that slowdown into the fourth quarter. we also received a string of disappointing readings related to the canadian consumer. vehicle sales, retail sales more generally, consumer confidence and job growth all softened. we are now monitoring fourth - quarter growth of only 0. 3 percent. at the same time, third - quarter investment spending was surprisingly strong. statistics canada ’ s historical revisions showed more growth, more investment from government infrastructure spending and a higher household saving rate than previously thought. in short, the canadian economy last year was in a stronger position than we previously believed — operating close to capacity with inflation near target. much of governing council ’ s deliberations focused on how persistent this recent slowdown in the domestic economy might be. the bank ’ s outlook is for a rebound in growth to about 1. 3 percent in the first quarter and a pickup to about 2

cent since 1990, compared with an average annual rate of growth for world gdp of 3. 75 per cent over the same period. it is safe to say that this tremendous growth in world trade has been far greater than anyone had expected. given the close trade ties between our two economies, it is not surprising that there has traditionally been a rather strong correlation between economic growth rates in canada and the united states. 1 our economies have tended to move fairly closely together throughout economic cycles. so it's not hard to see how, for example, developments in the auto sector in the united states are felt almost immediately in canada, or how swings in housing starts in the united states affect canada's forest products industry. in the bank's latest monetary policy report, we noted that our base - case economic projection for the united states incorporates a 15 per cent decline in residential investment this year, and a further 11 per cent drop next year. all else being equal, our analysis suggests that this would lead to a the imf estimates that a 1 - percentage - point decline in u. s. gdp growth is associated with a decline of 0. 5 percentage points in canadian gdp. see the imf's april 2007 world economic outlook, page 137. reduction in the growth of canada's gdp of 0. 4 percentage points this year and 0. 3 percentage points in 2008. following the implementation of the free trade agreement, canada began to send an increasing share of its exports to the united states. from 1990 to 2000, the percentage of canadian goods exported to the united states rose from just under 75 per cent to just under 87 per cent. of course, the original fta turned into the north american free trade agreement ( nafta ) with the addition of mexico in 1994. and under nafta, mexico has also increased the concentration of its exports that go to the united states, reaching a peak of about 89 per cent in the year 2000. but below the surface, the story is much more interesting and complex. while the share of canadian and mexican exports to the united states remains higher today than before free trade, the share of imports received by both countries from the united states is not higher. 2 further, the year 2000 looks to have been a turning point. with the accession of china to the world trade organization in 2001, that country and, to a lesser extent, india started to become increasingly important global players. so the share of both canadian and mexican exports to the united states