that high inflation, large government deficits, slower productivity growth, and lower commodity prices have tended to complicate canada ’ s economic situation over the past 25 years. but as i said at the beginning, much of the greater sense of difficulty and concern that canadians have felt in the 1990s has to do with the after - effects of the strong medicine we have had to take to turn our economic performance around. the success we have had so far in this regard bodes well for our future. canada ’ s inflation rate has come down dramatically, averaging less than 2 per cent since 1992. and there are now agreed targets between the bank of canada and the government of canada to keep inflation low and stable in the future. more importantly, canadians have come to expect continued low inflation and to build that expectation into their plans. the federal government and most provincial governments now have balanced budgets or are running surpluses. the total government debt - to - gdp ratio, which peaked at 70 per cent in 1996, has since fallen to 63 per cent. with present prudent fiscal policies, it should continue to decline steadily. future gains in productivity are difficult to predict. certainly, our improved inflation and fiscal situation, together with the low interest rates that they have made possible, provide the best climate for fostering productivity that we have had in a long time. moreover, canadian businesses have undergone major restructuring during the 1990s in response to increasingly competitive world markets. business investment has been rising smartly recently and more firms have been adopting new production technologies. it is also interesting to note that, after eight years of economic expansion, productivity growth in the united states has picked up, rather than falling off as usually happens at this stage of the cycle. tight labour markets seem to have encouraged a record level of investment in that country and more efficient use of technology than before. while the pickup in canadian investment in machinery and equipment has lagged somewhat behind that in the united states, new technology is not the exclusive preserve of our u. s. neighbours. so i hope that in canada, too, we will see a similar payoff from the adoption of new technology and a comparable improvement in productivity. as for commodity prices, there has already been some turnaround this year, but a firmer recovery requires a strengthening world economy – in particular, a turnaround in japan and the rest of asia. the other point to note in this connection is that the relative importance of commodities in the canadian economy has declined. the share of

dp / 2010 / dp10 - 4. pdf >. its austerity package, and the united kingdom is planning for an early and tough budget. similar measures are likely in other countries in the coming weeks. however, the coming “ age of austerity ” carries its own risks. fiscal policy that is tighter, sooner for all could create deficient demand in the global economy. the bank of canada estimates that, in the absence of real exchange rate adjustment and higher domestic demand elsewhere, the shortfall in global gdp could reach $ 7 trillion by 2015. 3 to recoup this enormous sum, both the public and private sectors must be bold. public boldness : the g - 20 agenda at the pittsburgh summit last september, the g - 20 claimed that “ it worked. ” well, it isn ’ t over. the g - 20 ’ s agenda is comprehensive and radical, but we need to implement, as well as propose. as a consequence, canada ’ s priorities for the upcoming g - 20 leaders summit are : to make concrete the g - 20 framework for “ strong, sustainable, and balanced growth. ” this stresses the shared responsibility of countries to make up that $ 7 trillion shortfall i just highlighted. this will require changes in behaviour and policy adjustments on several fronts, including : – sustained and credible fiscal consolidation in the advanced countries ; – structural and financial reforms that will increase domestic demand in major emerging - market economies ; – increased real exchange rate flexibility in emerging - market economies to facilitate the adjustment from external demand to domestic demand ; and – structural reforms to enhance productivity and potential growth in advanced economies. to move forward on the core g - 20 financial reform agenda. there are two main approaches to reform : to protect the banks from the cycle and to protect the cycle from the banks. both are necessary. – protecting the banks from the economic cycle means making each bank, individually, more resilient. this will require more capital, higher liquidity, and better risk management, complemented by stronger supervision. while there is still much to be done, in general, these types of measures will make global financial institutions look more like their canadian peers. – protecting the cycle from the banks means making the system as a whole more resilient. this requires building a system that can withstand the failure of any single financial institution. these measures ( including contingent capital, better infrastructure for key markets, and new resolution authorities ) are new and will change how our financial system