orders, which have historically been closely associated with industrial production3, remain in negative territory. so we are now seeing a more persistent deterioration of external demand. but a “ soft patch ” does not necessarily foreshadow a serious slump. during the four euro area business cycle expansions since 1970, there have been 50 soft patches – defined as a two - quarter growth slowdown – and only 4 recessions. 4 in fact, the euro area faced an analogous situation in 2016, when the economy also went through a soft patch triggered by a contraction in world trade. at that time, the strength of the domestic economy was able to shield the recovery from external uncertainties. the key question is whether, with monetary policy continuing to support the expansion, domestic 1 / 6 bis central bankers'speeches demand will remain as resilient today. the demand component typically affected most by a weaker global environment is investment. ecb internal analysis shows that the more exposed euro area listed firms are to foreign markets, the more sensitive they are to uncertainty when making their investment decisions. and there are some signs that external demand may be affecting investment via manufacturing value chains within the euro area. in particular, both extra and intra - euro area trade slowed steeply last year, whereas in 2016 intraeuro area trade was robust to the external slowdown. such a recoupling of intra - and extra - euro area trade growth in a downward direction has not occurred since the start of the global financial crisis. intra - euro area exports of intermediate and capital goods were hit particularly hard, with capital goods exports registering their strongest contraction since the sovereign debt crisis. a further rise in global uncertainty could therefore lead to a deceleration in trade and investment. but for now expectations for investment remain relatively robust. though professional forecasters have slightly downgraded their projections for investment growth this year – from around 3 % to around 2. 5 % – the fundamentals are in place for investment to rebound, if global growth stabilises. capacity utilisation stands close to its long - term maximum, financing conditions remain very favourable and corporate leverage5 ( as a percentage of total assets ) has fallen to levels last witnessed in the early years of emu – although gross corporate indebtedness6 ( as a percentage of gross value added ) still stands above its pre - crisis level. the latest surveys also suggest some recovery in business sentiment. while consumption is typically less affected by external developments, its growth rate has slowed over the

now let me turn to policy co - operation and coordination. i want to start by emphasizing that the inflation targets are joint targets. they are not just the bank's targets — they are the targets of the government of canada as well. put another way, " coordination " came through the joint agreement on inflation targets. with clear agreement on the medium - term policy objectives and an understanding of the policy framework, there is no need for coordination on the setting of interest rates or fiscal policy instruments. the economic literature on policy coordination tends to be about situations where the fiscal and monetary authorities have one or more of the following : very different views of economic welfare, inconsistent policy objectives, policy that is totally discretionary, or a tendency to get involved in gamelike behaviour with one another. none of these applies in canada. given the policy framework, when the government changes fiscal policy, it needs to think of how these changes will affect inflation and, consequently, interest rates. similarly, the bank needs to consider how changes in fiscal policy will affect demand and inflation, and thus its setting of interest rates. therefore, it is to the mutual benefit of both parties to co - operate in the sharing of information and analysis as they set their policies. for example, it is important for the bank to recognize that government policies can affect the production potential of the economy through their effect on sustainable labour utilization rates and the level of productivity. the bank needs to consider this information when making its policy decisions. co - operation between the bank and the federal department of finance occurs on a number of levels. i have frequent discussions with the minister and deputy minister. my colleagues on the governing council stay in touch with the associate and assistant deputy ministers who are their counterparts. and there are meetings at the staff level to share, for example, information from economic forecasts, surveys, and contacts with various groups and organizations. one of the key reasons for our regular discussions is so that each institution understands the details of the framework within which the other organization is pursuing its objectives and how this framework applies to current economic surprises. with our inflation - targeting regime, provincial fiscal authorities — especially those in large provinces — also know that the bank will react to the effect that their policies could have on the course of future inflation. at the same time, we at the bank are obligated to keep the provincial authorities informed of our views on future inflation. some of you may be surprised that i have not said anything about the appropriate mix of monetary and