in productivity. on the labour market, the priority must be to enhance wage flexibility and incentives to work, and to remove labour market rigidities. finally, the governing council is of the view that the package of six legislative proposals on economic governance, adopted by the european council at its summit on 24 – 25 march 2011, goes some way to improving economic and budgetary surveillance in the euro area. however, in our view, the proposals fall short of the necessary quantum leap in the surveillance of the euro area which is needed to ensure the smooth functioning of economic and monetary union. therefore, the governing council, in line with the ecb ’ s opinion of 17 february 2011 on these proposals, urges the ecofin council, the european parliament and the commission to agree, in the context of their “ trialogue ”, on more stringent requirements, more automaticity in the procedures and a clearer focus on the most vulnerable countries with losses in competitiveness. all this would help to ensure that the new framework is effective in the long run. bis central bankers ’ speeches

in the global economy has also surprised on the upside. so, we do not yet see the well - balanced base that would give us assurance that growth is on a solid footing. this brings me to the second issue. given the performance of exports and investment, the uncertainty regarding the tax and trade policies of the us administration again factored prominently in our discussions. the bank of canada is quite used to dealing with uncertainty, and we were very deliberate in choosing how to incorporate it into our projections and policy decision. in terms of potential us tax measures, we judged in january that there was enough information available to make some initial assumptions. there are now signs that suggest implementation will be delayed, and so we have updated these assumptions. we took a different approach to uncertainty about potential us trade policies. we now have a 1 / 2 bis central bankers'speeches better sense than in january of the extremely wide range of possibilities : they include a borderadjustment tax, targeted tariffs on some products and countries, non - tariff barriers and even broader multilateral trade measures. we do not know which of these will be enacted ; their timing is uncertain ; and each would affect the global economy and canada through a different, complex set of channels. take a look at box 1 of the report for a discussion of this. although it is fair to say that the possible outcomes are almost certainly negative for canada, we cannot reliably model them at this stage. instead, we have incorporated an extra degree of caution in our forecast for exports relative to our january forecast, including the potential implications of the softwood lumber dispute. we have also been cautious with our forecast of business investment. while businesses are becoming more confident, they remain wary. when we talk with companies, many tell us that planned increases in investment are modest, or related to maintenance, rather than to expansion. overall, we project economic growth in canada to slow from an annual pace of 3. 8 per cent in the first quarter to just over 2 per cent for the remainder of the year. we project growth of just under 2 per cent in 2018 and 2019. given the stronger profile of economic activity relative to january, governing council was very focused on the third issue : how much excess capacity remains in the economy. we use a couple of different methods to gauge the amount of excess capacity, which gives us a range of estimates of excess supply. evidence from inflation data is also consistent with material excess capacity remaining. although a number of temporary factors are keeping headline