of slower global and us growth, a new round of cuts to investment in canada ’ s energy sector, and a stronger canadian dollar would have meant a lower projected growth profile for the canadian economy than we had in january. i know this sounds contrary to what you have heard lately, because a range of monthly economic indicators have started the year strongly. some of this strength represents a catchup after temporary weakness in the fourth quarter, and some of it reflects temporary factors that will unwind in the second quarter. we think it is best to look through that variability, and note that the economy appears to be achieving average growth of close to 2 per cent in the first half of the year, which is encouraging. that brings me to the fourth important item that ’ s changed since january – the recent federal budget. we can ’ t be entirely certain about the full effects of the budget on the economy, as some will depend on how households react over time. but governing council judged that the budget actions will more than offset the negatives from the other three changes i just mentioned. the net effect is that our projected growth profile is generally higher than it was in january. when it comes to projecting inflation, we must consider our forecast for economic growth relative to the economy ’ s potential, or capacity. we do a fulsome review of canada ’ s economic bis central bankers ’ speeches potential at this time each year, and this was an especially important part of the governing council ’ s deliberations. that is because, as we highlighted in last october ’ s mpr, it is particularly difficult to measure capacity when an economy is undergoing a structural adjustment, as canada ’ s is. that translates into increased uncertainty around the size of the output gap and the speed at which it will close, and therefore the point at which the disinflationary pressures we see today will dissipate. specifically, the collapse in investment in the commodity sector will mean a slowdown in the economy ’ s potential growth rate. in the near term, we ’ ve lowered potential output growth from 1. 8 per cent to 1. 5 per cent. you can find details in a staff analytical note we published today. later this year, the natural sequence of higher non - resource exports and a tightening of capacity constraints should lead to higher investment and employment in the non - resource economy, and therefore growing capacity. looking beyond the projection horizon, growth in potential output overall should pick up again. this newly - added capacity may

david dodge : staying the course speech by mr david dodge, governor of the bank of canada, during a panel discussion at the banco de mexico, mexico city, 12 november 2002. * * * the dramatic events of the last two years and growing concern about the near - term prospects for the global economy have created a climate in which policy - makers focus only on current economic developments and lose sight of longer - term goals. there's a natural tendency to focus on the here and now, and to use any tools that are readily at hand to deal with today's problems, without proper regard for their long - term consequences. it's easy to forget the hard - learned lessons of the past and overlook the longer - term fundamentals that are necessary to support a strong recovery and sustained positive economic performance over time. what are those fundamentals? mr. greenspan, in his opening remarks to this conference, talked about the importance of the fundamentals, going all the way back to adam smith. what's interesting is that things have not changed that much. but we don't have to reach that far in history for guiding principles. we can look at the four key principles that emerged as part of the oecd consensus during the 1980s. the first principle relates to monetary policy. it basically recognized price stability as the appropriate goal for monetary policy over the medium term. policy - makers were advised to respond symmetrically, and in a forward - looking manner, to excess demand and supply so as to keep the economy on an even keel, thus achieving price stability and maximizing output over the medium term. the second principle applied to fiscal policy and the need for a more disciplined approach to managing the public purse. rising debt levels and an aging population made it clear that concrete action was necessary to eliminate deficits and put the debt - to - gdp ratio firmly on a declining path. automatic stabilizers should still be allowed to work during economic downturns. but in good times, surpluses would be generated that would help preserve the budget balance and keep the debt - to - gdp ratio on a downward trend. the third principle focused on the need for wide - ranging structural reform to reduce rigidities and inefficiencies. this meant removing burdensome regulations and legislative restrictions and eliminating wasteful government expenditures and distortionary tax and subsidy systems. the fourth, and final, principle called for trade liberalization. it was based on the premise that only through freer international trade can countries