start from a low inflation rate. and that ’ s why we say that the downside risks to inflation remain important – because they would have the potential to push inflation significantly further away from our 2 per cent target. if we ask ourselves where those risks might come from, obviously, our story hinges critically on the outlook for our exports. we already have what looks like a soft landing emerging in housing, so it is crucial that at the same time there is a pickup of momentum in our exports, which we believe will then be followed by a pickup in business investment. those two shifts will put our economy on a sustainable growth track. however, if, for some reason, the export recovery were less than we ’ re predicting, then total inflation, having gone up to target, will simply drift back down to converge with core inflation at perhaps around 1 per cent, because the output gap will be just as big as before. either way, it should be clear that we are still a long way from home, as it will take until early 2016 to get underlying inflation back up to 2 per cent. our economy has room to grow. and, when we do get home, there is a growing consensus that interest rates will still be lower than we were accustomed to in the past – both because of our shifting demographics and because, after such a long period at such unusually low levels, interest rates won ’ t need to move as much to have the same impact on the economy. last week, reflecting our analysis, we maintained the target for the overnight rate at 1 per cent. conclusion it ’ s time to wrap up. we can ’ t be 100 per cent sure that oil prices will stay high indefinitely. we have a forecast, but the circumstances can obviously change. what ’ s crucial is that the canadian economy maintain its ability to adapt to shifting temperatures. diversifying our export markets is important to future growth and resilience. just as when you travel from one part of canada to another, the weather can be dramatically different – hot in the okanagan, bone - chilling cold in the prairies and moderate in the maritimes – local economies can cover the gamut from hot to not. we are fortunate that we bis central bankers ’ speeches can see these shifts in economic temperatures as they occur. the key is having an economy that is flexible enough to sustain the shocks and adjust to them smoothly. the more we know about the shocks and adjustments, the better prepared we are and the better able we

s essential that labour can flow to the most productive firms, rather than being bottled up in the least productive. that in turn requires that the most productive firms are able to grow and create new jobs. and it requires that workers have the incentives, skills and means to move to them. in an average mature economy, around 50 % of productivity growth comes from such reallocation. when people think about reallocation, they tend to think in terms of people moving across sectors. but typically, that only accounts for a small share of productivity growth. 18 what ’ s more important for mature economies is within - sector reallocation, which means shifting resources towards the most productive firms within each sector of the economy. that ’ s encouraging because expecting, say, steel workers to become bankers is not realistic. but expecting them to move to better firms within their sector is. for this to happen, however, the structural conditions have to be right. product markets have to allow market entry, to challenge unproductive firms ; they have to support firm growth, so that the most productive can reach their optimal size ; and they have to facilitate quick bankruptcy, so that the weakest firms can exit. similarly, labour markets have to set incentives for mobility ; support retraining and upskilling where needed ; and allow wages to match productivity at the firm level, creating proper market signals. clearly, for firms to prosper in this environment, they need to be agile. increased agility would enable firms to switch production towards the higher quality, distinctive, more customised goods and services increasingly demanded by ever more sophisticated customers, which has long been the strategy of europe ’ s leading exporters. 19 and since such goods and services typically command a price premium in the market, that would in turn lift the value of output, raise national income and secure and expand employment. david autor and david dorn, the growth of low - skill service jobs and the polarization of the us labor market, american economic review, 2013, 103 ( 5 ) : 1553 – 1597. see the article entitled, “ what is behind the recent rebound in euro area employment? ”, ecb economic bulletin, no. 8 ( december 2015 ). ulf lewrickb, lukas mohlera and rolf weder, when firms and industries matter : understanding the sources of productivity growth, bis working papers no 469 ( october 2014 ). among several other papers, see e. g. krizan