the external disturbances, this is not a bad economic outcome. and for this, we can thank our sounder fiscal position and low and stable inflation, which have helped us weather the international instability better this time around. these same factors, coupled with calmer financial markets, have allowed the bank to lower the bank rate four times since the autumn ( fully reversing last august ’ s increase ), and to refocus attention on the medium - term objective of keeping inflation within the 1 to 3 per cent target range. currently, inflation is just inside the bottom of the range. the economic outlook as i said before, the world economic horizon is now clearer. interest rate reductions around the world - - most recently across the euro area - - have helped to rebuild investor confidence and to calm global financial markets. this includes markets in the troubled southeast asian economies, where progress is being made on structural reforms and the outlook for a turnaround this year and next has improved, especially in south korea, but also in thailand and malaysia. there are also signs that the financial situation in brazil, which looked precarious in late 1998, is now stabilizing with the adoption of measures to address imbalances in the country ’ s fiscal and external accounts. what is less clear is the extent of short - term economic weakness one can expect in latin america because of the difficulties in brazil. there has also been a slowdown in the pace of economic expansion in europe. but easier monetary conditions - - that is, lower interest rates and the lower value of the euro - - should help offset some of the economic weakness there. and these lower interest rates are a positive element for the international economy as a whole. the main question mark in the outlook continues to be the japanese economy, which has been in recession since late 1997. even if stimulative macroeconomic policies are pursued systematically, and progress continues on banking sector reform, it is rather unlikely that there will be much of a recovery there before the year is out. in contrast, the u. s. economy continues to flourish, consistently outperforming expectations and with no sign of inflationary pressures. that economy ended 1998 on a much stronger note than had been expected. and the momentum of u. s. economic activity in early 1999 is greater than most forecasters had predicted. from a canadian perspective, this is the most positive element in the current external economic environment, as anyone who sells to u. s. markets can confirm. strong

mr thiessen discusses the effect on the canadian economy of recent global financial turbulence remarks by gordon g thiessen, governor of the bank of canada, to the “ chambre de commerce de la region sherbrookoise ” in sherbrooke, quebec on 4 may 1999. global financial turbulence and the canadian economy the world economy and canada have had to navigate some difficult straits in the past couple of years. but we have made it through. and considering the tide from the asian financial crisis that washed around the world, the canadian economy has coped better this time around than in the past. with the clouds of international uncertainty gradually lifting, canada ’ s solid economic foundations are providing good reason to remain positive about the outlook for our economy. today, i would like to talk about recent economic developments and the prospects for canada. but since much of what has been happening here recently has been heavily influenced by external events, i would also like to discuss some of the measures the international community is contemplating to prevent, or at least reduce the severity of, any future crises. recent developments in the canadian economy the financial crisis that began in southeast asia in mid - 1997 turned out to be much more persistent and serious than anyone had expected. during 1998, the turmoil spread to russia and brazil, causing a great deal of nervousness and volatility in markets everywhere. this led to large outflows of capital from many emerging - market economies, rising interest rates, tighter credit conditions, and a marked slowdown in economic growth worldwide. canada has not been insulated from these forces. many of our industries, including those in quebec, have been hard hit. the most immediate impact on our economy has been the lower foreign demand for the key primary commodities we produce and a 20 per cent drop in their prices between the middle of 1997 and the end of 1998. these developments were reflected in the value of our currency, which declined sharply against the u. s. dollar. as the turmoil in markets increased following the russian debt moratorium last august, the bank of canada moved to head off signs of a potential loss of confidence in canadian dollar investments, by raising the bank rate one full percentage point. the confidence of households and businesses in canada was also affected by market nervousness and volatility, and this dampened domestic spending. consequently, the canadian economy expanded by just under 3 per cent through 1998 ( fourth quarter over fourth quarter ) compared with over 4 per cent in 1997. considering the seriousness of