##located in an open economy. that's why we need to ensure that there are no unnecessary structural impediments to economic adjustment – impediments such as barriers to investment, to labour mobility, and to trade. in the past five years, the canadian economy has demonstrated increased flexibility. but, as i'll explain in a moment, more can be done. finally, i should point out that the adjustment process in the past five years has been helped a good deal by the favourable backdrop of strong growth in the global economy. robust demand for canadian goods has helped to offset some of the stresses and costs of adjustment. with this in mind, i think it's useful to point out that while canadians can control their monetary policy and fiscal situation, and can, through various measures, encourage flexibility, we have less control over the external environment. and it's only prudent to keep in mind the possibility that the external environment may not always be favourable. so, the question arises : what do we need to do so that canada remains able to respond effectively to the challenges of the future, in both good times and bad? meeting the challenges of future economic change all canadians have a stake in the national economy. and we all have a role in helping to promote policies and actions that foster sustainable economic growth – whatever the backdrop. for its part, the bank of canada will continue to work toward the goal of keeping inflation low and stable, and we will do our part in promoting a sound and efficient financial system. indeed, all policy - makers have a key role in promoting efficiency, productivity, and further economic flexibility. in an increasingly competitive world, the bar is always rising, so we cannot rest on our laurels. the policy areas in which we have more work to do will be familiar to you. in the financial sector, which i know best, securities regulation needs to be made simpler and more efficient. and generally, many business regulations need to be harmonized across canada and some across the nafta region. and barriers within canada to the free movement of goods, services and labour need to be removed. tackling this issue is especially important now, as shortages of skilled labour are becoming more pronounced. and it will become even more important as demographic challenges begin to intensify. it would be helpful if trades and professional designations were recognized and fully transferable across the country, and if we could resolve the difficult issue of recognizing the qualifications of many talented immigrants.

extraction. this, in turn, has prompted strong gains in both investment spending and employment in those sectors of the economy. most sectors with a low exposure to international trade ( such as personal services ) have also experienced relatively strong levels of profitability and solid gains in employment. on the other hand, with the substantial rise in the exchange rate and increased competition from many of the asian economies, many industries with a high exposure to international trade – typically manufacturers – have faced difficult adjustments since the end of 2002. this has been reflected in lower rates of profitability, modest gains in production, and declines in employment. but overall, canada has adjusted well to the challenges of the past five years. since 2002, our labour markets have performed well – the unemployment rate is now close to a 30 - year low. and our average annual economic growth rate has been greater than the average growth rate of the g - 7 countries as a whole. that's the national picture. in many respects, saskatchewan is a microcosm of these trends. real provincial gdp growth is solid and close to the national average. in the past five years, saskatchewan has seen its labour participation rate increase significantly – from 65. 7 to more than 70 per cent – and the unemployment rate has dropped from 5. 4 per cent in february of 2002 to 4. 1 per cent last month, indicating a robust labour market. of course, saskatchewan has been helped a good deal by the increase in world commodity prices that i mentioned earlier – especially for energy, potash, and uranium, while manufacturers here have faced challenges similar to those faced by manufacturers elsewhere in canada. to summarize, the past five years have been a time of large and significant economic adjustment. despite the stresses and strains that such a change can cause, canada has done very well, all things considered. the economy is strong, canadians are working, and they have seen increases in wealth and income. what are some of the factors that explain this successful adjustment? what explains the success of the adjustment process? in an open economy like canada's, the most important factor is flexibility. by flexibility, i mean the ability of the economy to adjust to changes in circumstance – that is, for resources to shift from areas of weakening demand to areas of strengthening demand – and for the economy to return to its production potential quickly, with as little cost as possible. but flexibility doesn't just happen – it's a function of structural policies, human capital, and our business