mr thiessen reports on the future of the canadian financial sector, the economy and monetary policy remarks by mr gordon thiessen, governor of the bank of canada, to the mennonite savings and credit union kitchener, ontario 22 march 1999. i am delighted to be with you this evening to celebrate the 35th annual meeting of the mennonite savings and credit union. on this occasion, i propose to speak about the canadian economy and monetary policy. but given this audience, i thought i might start with some remarks on the future of the canadian financial sector – a subject that has certainly grabbed its share of headlines over the past year! in december 1996 the minister of finance appointed a task force to assess the current situation and the future prospects of the canadian financial services sector, and to make recommendations for change. in early 1998, while this inquiry was still on, four of canada ’ s six largest banks announced plans to merge. the task force submitted its report ( the mackay report ) last september. in december 1998 the minister of finance, having taken into account that report as well as assessments of the proposed mergers by the office of the superintendent of financial institutions and the competition bureau, decided not to allow the mergers. the government is now examining the issues facing the financial services sector and, in the course of 1999, it intends to present its proposals for modifying the relevant regulatory framework. the bank of canada is one of several agencies in ottawa that provide advice to the minister of finance on the appropriate legislative framework for the financial industry. because of this, i am not in a position to comment on specific proposals for change. but what i can do is offer some general comments on the broad issues involved in ensuring an efficient and sound financial industry in canada as we strive to adapt to ongoing worldwide changes in the provision of financial services. potential reforms of the canadian financial system canadian financial institutions are among the best providers of financial services in the world. these days, they are operating in an intensely competitive global marketplace, teeming with change spawned by rapid advances in technology and innovative new financial products. these powerful forces have transformed the way financial institutions around the world operate and the way they market and deliver their services. globalization creates both opportunities and challenges. we must make sure that canadian financial institutions can compete effectively in both domestic and international markets, and that they can offer canadians innovative, world - class financial services. the mackay task force says this means we should enhance competition in the financial services industry. how? primarily by reducing restrictions

s the outlook for the medium term. let me turn now to examine the evolution of potential growth over the long term. i'll discuss each of the two components, trend labour input and trend labour productivity, emphasizing longer - term trends and reflecting on how these trends may have been affected by the current recession. labour input : a drag on potential output growth for the past 30 years, canada, like some other nations, has been sailing with a favourable wind at its back. potential output has increased fairly steadily at about 2. 7 per cent per annum, largely because of long - term increases in labour input – that is, the total hours supplied by the labour force. since 1977, trend labour input – a function of population, the labour force employment rate, and the change in average weekly hours worked – has grown about 1. 6 per cent annually. some key factors here have been the growth of the working - age population as baby boomers reached working age and, to a lesser extent, the increased participation of women in the labour force. over the next few years, these trends will begin to lose steam. those on the leading edge of the baby boom are now in their 60s. growth in the working - age population is slowing, and participation rates are declining. as these changes work their way through the population, they will have a dampening effect on trend labour input. 6 as well, the dependency ratio is likely to double over the next 20 years. 7 the demographic challenges that we have been worrying about for years have started to arrive. d. furceri and a. mourougane, " the effect of financial crises on potential output : new empirical evidence from oecd countries " ( working paper no. 699, oecd economics department, 22 may 2009 ). available at : < http : / / www. olis. oecd. org / olis / 2009doc. nsf / linkto / nt00002d9a / $ file / jt03265117. pdf >. the bank's previous estimates, as presented in the october 2008 monetary policy report, were for growth of potential output of 2. 4 per cent in 2009 and 2. 5 per cent in 2010 and 2011. r. barnett, " trend labour supply in canada : implications of demographic shifts and the increasing labour force attachment of women, " bank of canada review ( ottawa : bank of canada, summer 2007 ) : 5 - 18