gordon thiessen : the canadian economy - charting a course for the future remarks by mr gordon thiessen, governor of the bank of canada, to the chambre de commerce regionale de sainte - foy, sainte - foy, quebec, on 26 april 2000. * * * the 1990s was a difficult period for canada and the canadian economy. from the beginning of the decade, it was clear that we had to grapple with the problems that had been hampering our economic performance through most of the 1970s and 1980s. thus, the bank of canada set out to lower inflation. canadian businesses began to restructure their operations to become more productive and internationally competitive. and governments started the process of cutting public deficits and lowering debt burdens. dealing with these problems was certainly painful. and, in some cases, it took us a good part of the decade to overcome them. but we have now made some crucial improvements to our economic foundation. and as we step into the new century, we are beginning to see the benefits. the canadian economy has been expanding solidly for some time now. in fact, if we look through some temporary monthly declines, we are in our nineteenth quarter of positive growth. this is the longest uninterrupted economic expansion in canada since the mid - 1960s. and throughout, inflation has remained low and stable. the advantages of this expansion are now showing up in gains in employment and incomes. this is all very heartening. to maximize these benefits, we must build on - not be complacent about - our new - found economic vitality. we must avoid the boom - bust cycles of the past. this is one issue i would like to discuss today - how to minimize economic fluctuations. not eliminate them altogether, that is just not possible. in today ’ s globalized markets, there will still be times when canada ’ s very open economy will be hit by external shocks. and sometimes there will be surprises on the domestic side too. in the past, though, some of our economic ups and downs were aggravated by outbreaks of inflation. the question is, what can we do now to keep our economy moving along on a sustainable growth path? there is also the question of longer - term economic performance. for example, how low can our unemployment rate go on a sustainable basis? will we succeed in narrowing the gap between our standard of living and that of our us neighbours? what choices should we be making today that will improve

interest to discuss these issues, not only domestically, but most importantly in international forums, such as the international monetary fund, the g - 7, and the g - 20. ironically enough, the key to changing global savings and investment flows rests with each country doing what is right for itself. if all countries followed a framework of appropriate domestic policies, this would go a long way towards defusing the danger posed by global imbalances. these policies go well beyond the responsibilities of a central banker. but i am raising them because it is important that they be discussed more broadly. so let me take a few minutes to review some of these policies. i'll start with issues outside of central banking before turning to monetary policy. appropriate policies support confidence the way to ensure that global demand continues to grow over time is for all policy - makers to follow frameworks that give households the confidence to spend and businesses the confidence to invest. let's look at how this applies to fiscal policy. there is a clear need for countries to pursue a fiscal policy aimed at producing a sustainable ratio of public debt to gdp. such a policy gives businesses and consumers confidence that the value of their money will not be eroded over time, either by high inflation or by excessive rates of taxation. where a sustainable public debt - to - gdp ratio is now absent, it should be achieved ; where it is present, it should be maintained. clearly, fiscal consolidation is in the best interest of the u. s. economy and would also be helpful in resolving global imbalances. more generally, sound fiscal policies help support investor and household confidence in all economies. the second point is that authorities everywhere need to ensure that domestic policies are promoting well - functioning markets for goods, services, capital, and labour. in particular, labour markets need to be flexible enough to facilitate the movement of workers from sector to sector as the economy adjusts to events. this is especially true in the euro zone, where rigid labour markets have been undermining confidence. businesses hesitate to hire when labour market rules are so restrictive, and households lack the confidence to spend when unemployment rates are so high. by promoting domestic flexibility, policy - makers everywhere could support confidence and boost growth. this would be good for national economies, and it would also help to resolve global imbalances. there is also a need for policy - makers to recognize the positive role played by a well - functioning social safety net. here, i am referring to unemployment insurance, public health