of economic stress. a flexible exchange rate is also key to achieving our inflation targets over time. the recent turmoil showed us the value of the credibility we have earned. like others, to address the stresses of the crisis, we put the flexibility of our regime to work. nonetheless, throughout the recession and since, the inflation expectations of canadians have remained well anchored at the target, proving that our framework is secure and working. this past downturn was different from previous recessions. even though canada performed better than our g - 7 peers, the great recession put many companies out of business, especially small and exporting firms. many of those that survived dramatically reduced their operations, shuttering plants and dismantling equipment. these actions hurt – badly – in terms of job losses and lost output. while both have recovered – in fact, surpassed their pre - recession peaks – the structural damage caused by bis central bankers ’ speeches the crisis lingers. indeed, our recovery has been primarily driven by higher household spending, while exports have lagged behind. rather than a recovery in the usual sense, this looks more like a postwar reconstruction. or, if you will allow me to slide into more academic language for a moment and refer to the schumpeterian process of “ creative destruction, ” we ’ ve certainly had the destruction. but the creation side of the equation has been delayed by numerous unusual risks, heightened uncertainty, and a lack of confidence. this is what i want to talk about today. i want to discuss the impact of the crisis on canadian business and how the firms that have survived have changed and are responding. we need business confidence to continue to heal. this matters very much to the bank of canada. our understanding of these issues will be part of the rigorous distillation of information that drives our policy decisions. as part of the process, we meet, we talk, we argue and do our best to understand the significant forces driving the economy. with our next policy decision on 17 july, we are now at the early stage of this round. standard macroeconomic models can only go so far in capturing today ’ s dynamics, and especially when uncertainty is greater than normal, it is important to supplement the models with insights directly from business. my messages today will be relevant for companies across canada, but they resonate particularly in this region. as a native of oshawa, i understand that well. i have seen the impact of the crisis and the recession on the auto sector in my hometown

. that support helped save thousands of jobs throughout southern ontario. the firms that survived have lowered their cost structures. we are seeing more innovative processes and accelerated new product development. these elements improve the competitiveness of canadian firms and position them well to go head - to - head with u. s. and global parts - sector firms. they also help canada to gain a foothold in global supply chains. the recovery of auto sales in the united states is clearly under way – the first essential ingredient. but it remains to be seen how the reconstruction process i ’ ve discussed today will play out for this important sector. bis central bankers ’ speeches forestry i could tell a similar story about canada ’ s forestry sector, which – like the auto sector – is much smaller than before. in 2012, the canadian forestry industry accounted for about 1. 2 per cent of total gdp, down from around 1. 6 per cent in 2007. during the same period, almost 60, 000 workers – about 20 per cent of the forestry workforce – were displaced. here, too, the recovery in u. s. housing and the building of new relationships in fast - growing markets, such as china, are contributing to improved confidence. i could describe similar stories for other sectors including ict ( information and communications technology ) and biotechnology. these are all stories that we need to keep watching. what businesses are telling us from the frequent conversations the bank has with business leaders, we know that the entrepreneurial spirit is alive and well in canada. some of the decline in exports reflects the ingenuity of canadian firms, including firms in this region, in responding to the u. s. slowdown by pivoting their products and marketing to the faster - growing segments of the canadian economy. others became more competitive through restructuring or finding a niche adjacent to their traditional market. such insights feed importantly into the bank ’ s understanding of the workings of the canadian economy, and thus into the policy deliberations of the bank – and i strongly believe that, especially in these unusual times, as we work to understand the undercurrents of the recovery, this kind of dialogue with the private sector is critical. confidence to realize the economic growth that canada is looking for – a return to self - sustaining, selfgenerating growth – we need to see the rebuilding of capacity, through both the expansion of existing companies and the creation of new ones. this will require growing confidence among existing businesses and entrepreneurs. the gathering momentum in foreign demand,