david dodge : how the canadian economy is adjusting to global forces remarks by mr david dodge, governor of the bank of canada, to the canadian chamber of commerce, tokyo, 9 june 2005. * * * i am happy to have the opportunity to be back here in tokyo, and to address this group. no matter where you are in the global economy these days, everyone is talking about the same powerful, economic forces. we are all aware of the large and growing financial imbalances in the united states and in asia. rapid growth in emerging - market economies is driving up demand for commodities, and that has pushed up world prices for oil and many non - energy commodities. meanwhile, productivity improvements in some countries and a competitive world environment are lowering the prices for some consumer goods, communications services, and computer equipment. all of these forces are causing significant movement in the exchange rates of key currencies, including a sharp appreciation of the canadian dollar against the u. s. dollar over the past couple of years. in short, these are challenging economic times, not just in canada and japan, but throughout the world. today, i ’ d like to raise two issues. i ’ ll talk first about how the canadian economy has been adjusting in the face of these forces - an adjustment that is being facilitated by the bank of canada ’ s monetary policy framework. then, i ’ ll talk briefly about what needs to be done internationally to help bring about an orderly resolution of global imbalances. adjustments in the canadian economy so let me begin with the canadian economy. i should set the scene by saying just a few words about how the bank of canada conducts monetary policy. the bank of canada act calls on the bank to “ mitigate by its influence fluctuations in the general level of production, trade, prices and employment, so far as may be possible within the scope of monetary action, and generally to promote the economic and financial welfare of canada. ” the way we do this is by trying to keep inflation low, stable, and predictable. specifically, we aim to keep the annual rate of consumer price inflation at the 2 per cent midpoint of a 1 to 3 per cent target range. in order to keep inflation at the target, we try to keep the economy operating at full capacity. by this, i mean that we aim for a balance between total demand and supply in the economy. simply speaking, if the demand for goods and services is pushing the canadian economy against the limits of its capacity,

expected to slow from exceptionally high rates, and we are already seeing this in the most recent data on housing starts and resales. it is too early to tell how the recent housing measures introduced in ontario will ultimately affect activity and prices in and around toronto. in vancouver, when similar measures were introduced last year, we saw the market cool for a period of time. but it is picking up again. so, given we expect household spending to slow somewhat, it could surprise us and provide an unexpected boost to growth in the near term, which is another risk we mentioned in april. higherthan - expected spending, if funded by credit, could add to the vulnerabilities in the household sector. we have been monitoring these for some time and highlighted them in last week ’ s financial system review. in this regard, the recent policy measures taken by federal and provincial governments are welcome. if there was one disappointment in the first - quarter figures, it was exports. we actually saw a 3 / 8 bis central bankers'speeches decline of exports of services, which had been performing very well. at the same time, goods exports were flat. we have been working hard to understand the forces behind the data. stepping back from the quarterly data, there are other signs of adjustment. we see indications that demand in energy - intensive provinces is strengthening, after having fallen in 2015 and the first half of 2016. you just need to look at motor vehicle sales and housing resales ( chart 2 ). one challenge we have when assessing the geographic diversity of growth is that it takes longer for provincial data to be published — this year ’ s data on growth by province will not be available until well into 2018. that is why bank of canada staff recently developed models to get a timelier read on provincial gdp. 2 these models point to a broadening in provincial activity this year, in contrast to the lopsided growth we have seen over the past couple of years ( chart 3 ). we also see a regional broadening of demand in the results of our most recent business outlook survey. this survey asks 100 businesses every quarter about things like sales, 4 / 8 bis central bankers'speeches employment and investment intentions. executives across the country responded more optimistically about their future sales and their investment plans than they were just a few quarters ago. range of growing industries we also see a broadening when it comes to growth across industries ( chart 4 ). 3 we can see the adverse effect the oil price shock had on