stephen s poloz : opening statement before the house of commons standing committee on finance opening statement by mr stephen s poloz, governor of the bank of canada, before the house of commons standing committee on finance, ottawa, ontario, 31 october 2017. * * * good afternoon, mr. chairman and committee members. senior deputy governor wilkins and i are happy to be before you today to discuss the bank ’ s monetary policy report ( mpr ), which we published last week. when we were last here in april, we were celebrating the fact that we had upgraded our economic forecast following a long period of disappointment. i am happy to tell you that many of the positive trends that we saw then have continued. sources of economic growth have broadened across sectors and regions, and the process of adjustment to the oil price shock is essentially complete. the bank raised its policy interest rate twice since our last visit, in july and september. we did this in the context of very strong economic growth over the first half of the year and solid progress in the labour market. over the summer, we saw evidence of firming inflation and an economy that was rapidly closing its output gap. with these two rate increases, we have taken back the cuts we made in 2015, which were crucial in helping the economy adjust to the oil shock. growth in the first half of the year averaged just over 4 per cent at an annual rate. this reflected strong consumer spending backed by rising employment and income, together with increased business investment and a jump in energy exports. we are now starting to see signs of moderation in the second half, which we forecast in july. growth in consumption and investment is expected to ease, and growth in housing is projected to slow further, in part because of the measures introduced by the ontario government in april. all told, we forecast that the economy will expand by 3. 1 per cent this year, before slowing to 2. 1 per cent in 2018. this is still faster than the growth rate of potential. we estimate that the economy is now operating close to its capacity. inflation should reach our 2 per cent target in the second half of next year, a little later than earlier projected because of the temporary impact of the stronger canadian dollar this year. we are at a crucial spot in the economic cycle, and significant uncertainties are clouding the way forward. in our mpr, we identified the four most important sources of uncertainty. i will touch on these now. the first issue is inflation

uk and the european union is one of them. the anti - globalist movement and barriers to the free movement of goods, people and capital appear as harmful to the overall global economy. however, their negative effects fall disproportionally on emerging countries, such as albania, and the western balkans in a broader sense. let me know outline our assessment on the potential negative implications resulting from brexit and the relevant effects on the central banks in the region. 2. potential implications resulting from brexit for albania and the region brexit is certainly a determinant factor for the european union and the euro area. as such, it has left its mark in albania and the region. it may be accompanied by direct or indirect, short - term or long - term negative effects in the labour, goods and services markets. overall, the direct implications for albania and the region are assessed as minor ones, given that 3 / 4 bis central bankers'speeches trade exchange with the united kingdom is low. to illustrate my point, the export of albanian goods to the uk accounts for only 0. 2 % to the total over the past ten years, whereas the share of imports amounted to around 1. 1 %. the stock of british foreign investments in albania shows low rates, whereas the impact of emigration and remittances indicators is somewhat higher, but still a non - determinant factor. on the other hand, indirect effects would depend on brexit ’ s impact on the european economy and banking system. brexit may also translate into institutional developments that will affect the rules of european economic and financial market development, as well as european integration processes. in other words, implications for albania and the region potentially exist, but still remain difficult to identify. i would rather not dwell very long on this topic ; however, i do believe that today ’ s discussions will help us understand these processes and assess in advance the potential political and economic implications and consequences for our countries. i would like to stress that all of us in the western balkans remain hopeful that brexit will not generate centrifugal forces, which harm our european integration processes, initiate setting barriers to free trade and movement of people, and encourage further fragmentation of the european financial system. 3. monetary policy and financial stability in the post - brexit period the coordination of the monetary policy with the necessary measures for safeguarding financial stability remains a challenging issue for policy makers even in better days. the challenges to this