financial conditions, stronger business and consumer confidence, the beginning of the recovery in the global economy, and a strengthening in the terms of trade. at the same time, the weakness of the recovery in the u. s. economy and the persistent strength of the canadian dollar have exerted a drag on canada's growth. the balance of these factors has tended to shift the composition of aggregate demand towards growth in canada's domestic demand and away from net exports. overall, we continue to believe that canada's recovery is likely to be more gradual than in previous cycles. while inflation is now below the 2 per cent target, the bank expects that it will return to that target as the economy returns to potential. canada's housing market – recent developments from the outlook for the overall canadian economy, let me now narrow my focus to the housing sector. first, a bit of recent history. as you know, canadian housing activity dropped off sharply during 2008 and early 2009 as a result of the global recession. turnover in resale markets dropped by about 40 per cent from their peaks, while housing starts declined to 118, 500, well below the estimated sustainable long - run average of about 175, 000. however, the housing correction here was not nearly as destructive as the collapse of the u. s. housing market. this reflects, in part, the fact that the rise in housing prices prior to the crisis was not as sharp in canada as it was in the united states. between 2000 and 2006, u. s. house prices appreciated by nearly twice as much as canadian house prices. that said, canadian house prices continued to appreciate for a longer period 1. moreover, canada has not had the over - investment in housing that has created the need for painful adjustments in the united states and some other countries. the steady growth in housing investment ( that is, the construction of new housing units ) in canada over much of the past decade was due largely to strong employment and sustained income growth data from december 2009 federal reserve bank of cleveland economic commentary : “ why didn't canada's housing market go bust? ” j. macgee. sources cited : united states, s & p / case - shiller ( 20 - city composite index ) ; canada, teranet 6 - city composite index ). supported by rising commodity prices. there was also a degree of catch - up from underinvestment during the 1990s. the favourable financing environment, marked by relatively low interest rates plus accommo

have increasingly been given rights to pension surpluses, even though employees typically bear none of the responsibility for any deficit. a further distortion of incentives arises in those cases where the pension plan contributions are held in trust and administered by a trustee. currently, most pension plan trusts are set up so that the employees are beneficiaries of the trust. beginning in the 1980s, successive court decisions have established that sponsoring firms may gain exclusive access to a surplus in a pension plan trust only if the trust is set up in such a way as to permit the sponsoring firm to gain exclusive access. if defined - benefit plans are to survive, grow, and provide a source of funding for long - term, riskier assets, it is important that canadian policy - makers consider taking steps to rebalance the incentives for sponsors to operate defined - benefit plans. let me mention a few of the things that could be done. first, the provincial and federal governments need to make appropriate adjustments to their pension laws so that the sponsors of defined - benefit pension plans are responsible for all residual risks to the pension plan — both outcomes that lead to deficits and outcomes that lead to surpluses. let me be clear. i am not saying that firms should be given unambiguous sole ownership of pension surpluses, but rather that sponsors should have that ownership. there are a handful of pension funds — such as the ontario teachers'pension plan — where both the employer and employees are joint sponsors, and share ownership of any surpluses, as well as responsibility for any deficits. the second step would be to consider rebalancing the tax treatment of employer contributions. currently, in most circumstances, employers are not allowed to deduct contributions to a definedbenefit pension plan if the going - concern valuation of the plan is more than 110 per cent of expected future liabilities. this has certainly added to the bias against sponsors allowing surpluses to build up in their pension plans. third, there are issues with canadian accounting standards for pensions in terms of valuation that have been posing challenges since they were adopted in 1999. for one thing, changes in the annual discount rate used to value pension liabilities can result in large swings in the amount reported as pension expenses. for another thing, periodic actuarial valuations of defined - benefit plans also flow through firms'income statements. both of these issues lead to volatility in reported earnings, which investors do not like. so, accounting standards have become another reason for employers