cent in the first quarter, led by housing and consumer spending. employment growth has resumed. household spending is expected to decelerate to a pace more consistent with income growth. the anticipated pickup in business investment will be important for a more balanced recovery. this outlook is subject to considerable uncertainties. in most advanced economies, the recovery remains heavily dependent on monetary and fiscal stimulus. the required rebalancing of global growth has not yet materialized. in general, broad forces of household, bank, and sovereign deleveraging have barely begun and will add to the variability, and temper the pace, of global growth as they proceed. recent tensions in europe are likely to result in higher borrowing costs and more rapid tightening of fiscal policy in advanced economies. as i will discuss shortly, without countervailing policies, this could lead to a more protracted recovery. nothing is easy the reality of a policy - led, multi - speed recovery is that the global economy is now bumping up against three limits. p. cross, “ year - end review of 2009. ” canadian economic observer, statistics canada catalogue no. 11 - 010 - x, 23, no. 4, april 2010. the first is the supply response in commodities. with emerging - market economies ’ share of global growth now two - thirds, rather than the one - half it was at the start of the millennium, global growth is more commodity - intensive. in our april forecast, the bank projected an additional 30 per cent increase in the prices of non - energy commodities over the next few years. the second limit relates to the challenges of derivative monetary policy. owing to managed exchange rates, many emerging - market economies are acting as if u. s. monetary policy were appropriate to their circumstances. despite strong capital inflows, these countries are resorting to a series of measures of unproven effectiveness to address overheating pressures. capital controls, restrictions on loan - to - value ratios on mortgages, and higher reserve requirements are all stop - gap measures in the face of broader forces. while these measures will have some impact, ultimately, there are only two possibilities in emerging - market economies : either higher interest rates or higher inflation. the third limit is fiscal stimulus. reflecting the massive fiscal response and the recession, the international monetary fund projects that advanced economy debt will rise from about 80 per cent of gdp in 2008 to 110 per cent by 2015. major efforts will be required to stabilize the situation. the canary in the coal

bank of canada does not have a target or a preferred level for the canadian dollar. but we do monitor the exchange rate closely, and we look for information that can be gleaned from movements in the currency to help us interpret and assess the implications for aggregate demand in canada. together with the inflation target, the flexible exchange rate works to facilitate economic adjustment. how? put simply, movements in the exchange rate send appropriate signals to businesses, helping them to allocate capital and labour to the most efficient uses. now, in formulating monetary policy, we at the bank need to understand the underlying reasons for a currency movement. understanding these reasons allows us to estimate the net effect of the currency movement on aggregate demand and, in this way, to make appropriate monetary policy decisions. we've discussed this subject in past speeches and, more recently, in the autumn 2005 bank of canada review. so i will be brief today. in principle, there are two types of exchange rate movement : " type one, " those that stem from changes in the demand for canadian goods and services, and " type two, " those that do not. an example of a type one movement relates to the strengthening global economy, which, as noted, has led to a substantial increase in world commodity prices and to strong foreign demand for canadian products, especially raw materials. this development represents a direct increase in canadian aggregate demand. the associated appreciation of the canadian dollar has dampened the increase in demand and helped to facilitate the adjustment of the canadian economy by encouraging a shift in activity towards canada's commodity - exporting sector. to the extent that the dampening effect on demand exactly offsets the direct increase in demand, there would be no need for a policy response. a type two exchange rate movement does not reflect a change in the aggregate demand for canadian goods and services. instead, it may reflect a rebalancing of portfolios, that is, a change in foreign demand for canadian financial assets or a change in canadian demand for foreign financial assets. however, the exchange rate movement itself has an impact on the demand for canadian goods and services. when this movement persists, other things being equal, there would be a need for an offsetting change in monetary policy. a good example of a type two exchange rate movement was the appreciation of the u. s. dollar in the late 1990s when global investors, influenced by what they saw as robust prospects for the american economy, sought u. s. financial assets