risks surrounding our projection. there are risks on both the upside and the downside. the main risks are the ones that we have been talking about for the past six months or so. the main upside risk to our inflation projection comes from stronger household demand in canada. with the increases in house prices in many parts of the country, consumption could be stronger than expected as households borrow against the increased equity in their homes. there has been strong growth in various indicators of household credit over the past year, although the pace of growth has eased in recent months, and we have seen a slight deceleration in the annual rate of increase of new house prices more recently. so while this main upside risk remains, it appears to have diminished somewhat since october. the main downside risk continues to come from the united states, where clear weakness remains in the housing sector. but there are some encouraging signs. as i mentioned earlier, the slowdown in the u. s. housing and automotive sectors does not appear to have spread more broadly. there is evidence that a significant portion of the adjustment in the automotive sector has already taken place, while the adjustment in the housing sector continues. so, in the bank's judgment, the main downside risk to our inflation projection for canada does remain, but it has also diminished. overall, we judge that the risks to our inflation outlook are roughly balanced. in addition to these risks, we are faced with a great deal of uncertainty about the trend growth rate of potential output in canada. we are fairly confident in our assessment of the contribution of labour force growth to future potential output. however, there is a lot of uncertainty about the trend rate of productivity growth. we use the past trend rate – roughly 1. 5 per cent – as the basis for our projection of future productivity growth. but recent data on productivity have been disappointing. it is unclear how much of this weak performance is caused by cyclical factors that will be reversed in due course, and how much represents a permanent downward shift in the trend rate of productivity growth. adding to the uncertainty is the way the data tend to be revised over time. remember that you calculate productivity by dividing total output by total hours worked. both numbers are revised over time, sometimes fairly dramatically. this makes the challenge of understanding what's happening to the trend rate of productivity growth more difficult. finally, there does remain a possibility of a disorderly resolution of global imbalances. in general, the term " global imbalances

stephen s poloz : release of the financial system review opening statement by mr stephen s poloz, governor of the bank of canada, at the press conference following the release of the financial system review, ottawa, ontario, 8 june 2017. * * * good morning. senior deputy governor wilkins and i are glad to be with you today to talk about the june issue of the bank ’ s financial system review ( fsr ), which we published this morning. let me start with a quick reminder about the purpose of the fsr. it identifies vulnerabilities in the financial system — pre - existing conditions that can interact with economic shocks — and monitors how they are evolving. it also looks at the potential impact on the financial system and economy if a shock were to interact with, and be magnified by, these vulnerabilities. canada ’ s financial system remains resilient, and this resilience has increased because the canadian economy has strengthened since our previous fsr in december. still, the two most important vulnerabilities for canada ’ s financial system — the elevated level of household indebtedness and imbalances in the canadian housing market — have moved higher over the past six months. on the first, the level of household indebtedness in canada continues to rise. a good portion of this increased debt consists of mortgages and home equity lines of credit located in the greater toronto and vancouver areas. last year, the federal government introduced changes to housing finance policies aimed at improving the quality of borrowing. and there is evidence that these changes are working. this is particularly true for insured mortgages, where more than 80 per cent of the cost of the home is being borrowed. we have seen a drop in the proportion of insured mortgages being issued to highly indebted borrowers, that is, people whose debts are more than 450 per cent of their income. this is a positive development. however, we are now seeing more uninsured mortgages being issued, particularly in places such as toronto and vancouver, where prices are the highest in canada. in part, this is to be expected, given that insurance is not available for mortgages on homes with a price greater than $ 1 million. still, some of these uninsured mortgages are showing riskier characteristics. a growing share is going to people who are highly indebted, and these borrowers are amortizing the mortgages over longer periods. as well, we