to growth and development. this brings me to the second implication of the changing financial regulatory landscape in respect of preserving financial stability and the broader agenda of effective and efficient financial intermediation, taking into consideration the unique considerations in islamic finance. ladies and gentlemen, a sustained process of excessive financial deregulation and over reliance on market discipline particularly in advanced economies which led to a prolonged cycle of optimism and risk taking has been widely cited as part of the root cause of the recent global financial crisis. indeed, the pre - crisis era was a period of exuberance in financial innovation and rapid development in the conventional financial landscape. although it was argued that financial deregulation encourages innovation which in turn result in the more efficient allocation of resources, the recent crisis has shown that there is a need to balance between market discipline and regulatory oversight. whilst there is general support for the reform measures, there is also concern on the dangers of over - reaction by policymakers that could undermine the role of financial intermediation, and adversely affect the ultimate objective of economic growth and development. the concern is specifically on the unintended consequences of the regulatory reform. financial stability is not an end in itself ; it is a means towards achieving the ultimate goal of sustainable growth and shared prosperity. this presents the challenge for policymakers in finding the appropriate balance between preserving the resilience of the financial system versus maintaining the ability of the system to perform their intended function of delivering effective, efficient and innovative financing solutions to customers in the wider economy. hence, the concern is that that the regulatory reforms would increase the cost of financial intermediation. a careful assessment needs to be made of the potential medium and longterm effects of the proposed reforms on market structures and behaviour. these considerations are equally relevant in the context of islamic finance. the assessment on the aims and relevance of each of the proposed reform measures needs to take into account the two important considerations in islamic finance ; the need to support sustainable and responsible innovation, and secondly, to leverage on its inbuilt strengths that set islamic finance apart in performing its role in supporting the efficient mobilisation and allocation of resources to generate real economic activities. given the damaging effects of complexity and opacity associated with the recent unfettered innovative activities in the conventional financial markets, it has resulted in a reassessment of the role and benefits of financial innovation. in islamic finance, innovation is key in pushing the frontier of market development to generate the range of products and

concentrating on those that yield higher returns. and of course, all of these adjustments have implications for the canadian labour market. overall job growth has been strong, but there have been important sectoral differences. we have seen job gains in commodity - producing sectors and in those that have low exposure to foreign competition. however, employment has fallen in a number of manufacturing sectors. this reflects, at least partly, the fact that some firms are now substituting capital for labour in order to reduce costs, which is the opposite of the situation we saw in the late 1990s and at the beginning of this decade. canadian economic prospects before i conclude, let me quickly review the projections for the canadian economy that we set out in our monetary policy report yesterday. the global economy has been unfolding largely as expected, and the prospects for continued robust growth are quite favourable, especially over the near term. the outlook for the canadian economy through to the end of 2006 is essentially unchanged from that in our january monetary policy report update. our base - case projection calls for annualized growth of about 2 1 / 2 per cent in the first half of 2005 and 3 per cent in the second half. growth of about 3 1 / 2 per cent is expected through the four quarters of 2006, consistent with closing the output gap in the second half of next year. to express it in annual average terms, growth in 2005 is projected to be about 2 1 / 2 per cent, down slightly from the january update, while the projection for 2006 is little changed at about 3 1 / 4 per cent. with the economy expected to return to full production capacity in the second half of 2006, core inflation should move back to 2 per cent around the end of next year. based on the scenario implied by oil - price futures, total cpi inflation is expected to remain above the 2 per cent target for some time, before moving slightly below 2 per cent in the second half of 2006. in line with this outlook, a reduction of monetary stimulus will be required over time. however, i want to stress again that the bank is not committed to any particular interest rate path or timetable. conclusion let me conclude. as i noted at the beginning, there are powerful global economic forces at work, and economies everywhere need to make adjustments. in canada, businesses are, indeed, making adjustments to meet these challenges and to take advantage of emerging opportunities. at the bank of canada, we will continue to monitor these global forces closely and to assess their impact. we will