structure. in sum, it seems clear that growth in trend labour input will decline, and contribute less to the growth of potential output in future years. in the april monetary policy report, we said that we expect the growth rate of trend labour input to decline by 0. 1 percentage points in 2009. but from 2011 to 2020 we will see a more significant slowdown, as population growth continues to slow and the decline in the employment rate accelerates. remember that if there is a slowdown in trend labour input and the trend rate of productivity growth remains unchanged, the growth rate of potential output will also slow down. in other words, the economy will not be able to grow as quickly without sparking inflationary pressures. so it will be increasingly important that our economy uses the labour that is available in the most efficient way. what does this mean for policy - makers? to begin with, it means that we must remove any unnecessary barriers either to labour force participation or to labour mobility. governments should remove barriers to older workers remaining in the workforce. in this regard, we have seen some encouraging signs recently. mandatory retirement provisions have been eliminated in a number of provinces. and last year, british columbia and alberta reached an accord to harmonize labour credentials and business regulations and standards by early 2009. these are just a couple of examples of positive policy moves. canada's labour force has shown remarkable strength and flexibility, much more so than in previous decades. but more can be done to boost the flexibility of our labour markets. let me now talk briefly about productivity. the need for canada to focus on productivity is certainly not new. trend productivity growth has been subdued since the late 1970s and, unlike that of the united states, has failed to post a meaningful increase on a consistent basis over the past decade or so. there are a number of potential causes. canada appears to have taken less advantage of information and communications technologies and has invested less, not just in physical capital per worker but also in research and development, workplace reorganization, and worker training. and, most recently, the movement of labour and capital to take advantage of high prices for resources and strong domestic demand has likely led to some adjustment costs in the form of slower productivity growth. but while we don't fully understand the causes behind canada's productivity performance, it is absolutely clear that the record of the past few years has been very disappointing. on average, the annual growth in productivity since 2003 has fallen well short of our assumed rate of 1

began to decline at about that time, while both countries began to import more from outside north america. i don't want to overstate the situation. the united states remains canada's most important import source and export destination by far. but despite these close ties, it is clear that developments in the global economy have affected the economic links between canada and the united states. to understand how these links are changing, it's important to understand the differences in how the structures of the u. s. and canadian economies have been responding to recent global developments. global cyclical and structural developments over the past decade, we have seen a number of economic shocks that have affected the u. s. and canadian economies differently. why has this happened? part of the reason has to do with the rise to prominence of economies such as china and india. because of their size and their growing share of world output, it is their influence, rather than the u. s. economy, that is increasingly shaping the global business cycle and determining the prices of traded goods, including commodity prices. the other, related, reason why our two economies have been affected differently is, of course, the fact that commodity - price shocks result in opposite movements in the terms of trade for canada and the united states. this means that when canada's terms of trade have improved – that is, when canadians receive higher prices for exports and pay lower prices for imports – the terms of trade for the u. s. economy have tended to deteriorate. and the situation has been the reverse when canada's terms of trade have deteriorated. what this negative correlation in the terms of trade tells us is that even though the two economies are integrated, they have very different structures that, quite naturally, respond in different ways to certain shocks. consider both the asian crisis of 1997 - 98 and the events of the past five years or so, as china and india have risen to economic prominence. both of these events have had significant implications for the economies of north america. in the case of the asian crisis, we saw a marked slowdown in global economic growth, which resulted in a sharp decline in the prices for many of canada's primary commodities. with canada's share of exports to the united states rose from 72. 8 per cent in 1988 to a peak of 87. 1 per cent in 2002, compared with 79 per cent in the first half of 2007. canada's share of imports from the united states rose from 65