remarks by timothy lane deputy governor of the bank of canada ottawa board of trade december 5, 2019 ottawa, ontario economic progress report : charting our own course introduction good morning. it is a pleasure to be here to share my thoughts about the canadian economy and discuss the decision we announced yesterday to hold interest rates steady. i ’ d like to thank the ottawa board of trade for the invitation. it is news to no one that we are living in unsettled times. the world economy continues to be buffeted by trade conflict, and relations between the united states and china are on a roller coaster. this enduring uncertainty has already done some damage. global growth has suffered. because canada is an open economy dependent on trade, our economy has suffered as well. commodity prices, which affect a big part of our economy, have weakened over most of the year. business investment has been weighed down, and our exports have suffered because of softer global demand. but canada also has notable strengths, and inflation remains on target. our strong labour market points to sources of growth, such as computer system design and other professional services, education, health care and financial services. it is because of this strength amid the turmoil that we say canada is resilient, although it is not immune. this resilience has helped the bank of canada chart its own course in monetary policy. many people wonder why we have held our key policy rate steady over the past year while many other central banks have lowered their rates. the comparison between canada and the united states is front of mind. in 2019, the us federal reserve cut its rate three times, partly as insurance against the negative effects of the global environment. in canada, we ’ ve kept our policy rate unchanged since october 2018. that divergence is not as stark as it ’ s sometimes portrayed : when all is said and done, by this october the bank of canada and the fed ended up with the same policy rate. but it is sometimes i would like to thank brigitte desroches and harriet jackson for their help in preparing this speech. not for publication before 08 : 00 eastern time - 2believed we must do whatever the fed does because our economy is so closely tied to that of our largest trading partner. with that in mind, i ’ d like to take this opportunity to explain the path we ’ ve taken, not only in terms of yesterday ’ s decision but also more generally. in my remarks, i will look back on these separate paths that canada

baseline forecast, questions remain about whether market pricing fully reflects the risks inherent in the current global situation. commodity prices have been comparatively stable in the recent period. in this context, the canadian dollar has also been quite stable, keeping within a narrow range. turning to canada, the bank has been forecasting slower economic growth in the second half of 2019 after a very strong second quarter. that is indeed how the data are coming in. economic growth in the third quarter was 1. 3 percent, as projected in the october mpr. underlying this slowdown in overall gdp growth was an outright decline in exports. this has been driven by global weakness and trade uncertainty and by a reversal of temporary factors that had previously boosted growth, in particular for non - energy commodity exports. furthermore, the pace of inventory accumulation slowed, subtracting significantly from growth. on the positive side, final domestic demand in canada grew at quite a solid pace. one thing that has surprised us was business investment. we were expecting investment to decline in the second half of this year, but instead we have seen solid growth. moreover, data have been revised upward, revealing that investment earlier this year was higher than previously reported. another area of strength has been housing, which is continuing to rebound. we ’ ve seen most regions registering gains in resales and housing starts following a period of adjustment after the national and provincial policies had worked their way through. activity is also being boosted by strong growth in employment and wages, strong immigration and low household borrowing costs, which reflect the decline in global interest rates. house prices have also been rising modestly and household borrowing has been picking up. - 8consumption spending has also been contributing to growth. as we mentioned in october, the strong labour market, particularly in the service sector, has been underpinning the economy. while employment levelled off in october, this comes on the back of past strong gains. moreover, wages — which could be seen as a barometer of overall labour market conditions — are picking up further. overall, the data suggest that the labour market is continuing to tighten. revised historical data also indicate higher disposable incomes and more saving among canadian households than previously reported. overall, recent information augurs well for households ’ financial situations and their future spending, although consumer confidence has been softening. government spending is a mixed picture. while it has been supporting growth recently, this support is expected to wane in 2020 as consolidation in ontario and alberta takes hold