global in either nature or origin. so, it is important that policy - makers heighten their focus on the need to promote and enhance flexibility. our economies must be able to adjust to changing circumstances. if we are successful in this effort, not only will both the canadian and u. s. economies be able to deal with economic shocks, but we will also be able to sustain strong economic performance in north america. and that is the best outcome for canadians and americans alike. the projection for total cpi excludes the impact of the recently announced one - percentage - point cut in the federal gst, which would be effective 1 january 2008.

of growth is now slightly less favourable for canada. – uncertain global and domestic economic conditions are delaying the pickup in exports and business investment in canada. this leaves the level of economic activity lower than the bank had been expecting. – while household spending remains solid and some indicators in the housing sector continue to rise, we still expect a gradual unwinding of household imbalances. – the bank expects that a better balance between domestic and foreign demand will be achieved over time and that growth will become more selfsustaining. but this will take longer than previously projected. bis central bankers ’ speeches – we are expecting investment growth to contribute to a rebound in the rate of labour productivity growth over the next couple of years. however, demographic factors, primarily the aging population, are expected to put a drag on the growth rate of trend labour input. this drag will largely offset the effects of rising investment. this is why we expect that the growth rate of potential output will remain fairly stable at around 2 per cent over the next three years. – real gdp growth is projected to increase from 1. 6 per cent this year to 2. 3 per cent next year and 2. 6 per cent in 2015. the bank expects that the economy will return gradually to full production capacity, around the end of 2015. – inflation in canada has remained low in recent months. this reflects the significant slack in the economy, heightened competition in the retail sector, and some other sector - specific factors. – with larger and more persistent excess supply in the economy, both total cpi and core inflation are expected to return more gradually to 2 per cent, around the end of 2015. • although the bank considers the risks around its projected inflation path to be balanced, the fact that inflation has been persistently below target means that downside risks to inflation assume increasing importance. however, the bank must also take into consideration the risk of exacerbating already - elevated household imbalances. • weighing these factors, the bank judged on 23 october that the substantial monetary policy stimulus in place remained appropriate and decided to maintain the target for the overnight rate at 1 per cent. since then, while some new data points have been released, our outlook remains roughly the same, as i mentioned. if you have any questions about the recent data, tiff and i would be pleased to address them, as well as any other queries that you may have. thank you. bis central bankers ’ speeches