so, you might be wondering how canada is really doing in the face of all these conflicting economic forces. today i ’ d like to offer you a progress report. and let me say at the outset : we are making progress. four times a year, the bank publishes its monetary policy report ( mpr ), containing our latest projections for the canadian economy. our model - based forecasts are complemented by judgment, which is supported by extensive consultations with companies and other contacts. conditional on this economic projection, we choose a path for interest rates that will keep projected inflation on target or bring it back to target over a reasonable time frame. at the end of each mpr we highlight several risks to our forecast – issues that require the governing council to exercise judgment. in principle, if one of those risks were realized, projected inflation would deviate from the target, and an adjustment to policy might be indicated. bis central bankers ’ speeches the governing council spends a lot of time debating and forming judgments around these risks. so, i thought it might be interesting to invite you into our forecasting tent today and talk about how we have been seeing canada ’ s key economic risks evolve since our last mpr in april. the base forecast and risks for the past 18 months, the biggest issue for our forecast has been tracking how the canadian economy is adjusting to low resource prices. in the first instance, this has meant a big drop in investment spending, especially in the oil patch. it has also meant a lower value for the canadian dollar and two interest rate cuts during 2015. our forecast in april saw the canadian economy making its way back to full capacity during 2016 and 2017 – a process that would see inflation sustainably at our target of 2 per cent by late next year. without last year ’ s interest rate cuts, it would have taken much longer to have inflation return to target. while the april projection was being developed, the canadian economy appeared to be doing better than previously expected. however, our analysis suggested that we should not extrapolate that first - quarter surge in growth for the rest of the year – that some of the apparent strength represented a catch - up from a soft fourth quarter, and some other factors were probably temporary. accordingly, our april forecast anticipated a significant slowdown in growth for the second quarter and a decent pickup in the second half of the year, in part due to the government ’ s fiscal plan. several risks played an important role in these discussions ; i will now

that some of the recovery in prices is due to supply disruption that will probably be temporary, so we should reserve judgment. the more important reason, though, is that it ’ s highly uncertain what price level will rebalance the oil market on a sustained basis. it certainly looks as though prices will not be returning to their old highs in the foreseeable future. oil companies and their suppliers and service providers have found many ways to cut costs, and this is lowering break - even prices. this means that new oil supply can come back on stream profitably – especially in us shale plays – at lower prices than before, perhaps putting a lid on further price increases. the recent pickup in oil prices is, of course, welcome, because it means a boost to canadian income for every barrel exported. but an extended period of oil prices at recent levels is unlikely to lead to greater investment spending in the canadian oil patch. indeed, market bis central bankers ’ speeches intelligence suggests there is further downside risk to investment at these still - low price levels. accordingly, this remains a potential source of downside risk to our forecast. risk 4 : will consumers rein in their spending? the fourth risk we ’ ve been giving special attention to is the possibility that canadian households might become more cautious in their spending. at the heart of this uncertainty is the high level of household debt. it is natural to expect that, at some point, households will rein in their spending and put more effort into paying down their debt. there is no evidence of this downside risk so far, however. indeed, data from the first quarter show that household spending, including big - ticket items such as motor vehicle sales and housing, has remained strong. nevertheless, we will need to remain alert for signs that this risk is emerging. low interest rates and a resilient job market have certainly helped sustain consumer spending, and the tax rate changes that the government introduced at the beginning of the year may also be playing a role. we also think spending is being supported by the impact of cheaper gasoline, since the average canadian household is spending about $ 600 less per year to fill their tank. on the other side of the ledger, the decline in the canadian dollar has raised the price of a wide range of imports. a strong consumer is, of course, a key contributor to canada ’ s strong housing market. however, a number of other factors are at play, as seen in the significant regional divergences in housing sales and prices.