hedgefund intelligence ) set the assets in global hedge funds at about 2. 0 trillion u. s. dollars by the end of 2006, of which nearly 1. 5 trillions in u. s. funds, roughly 450 billions in european funds and 150 billions in asian funds. fig. 4 - global hedge fund assets ( billions of u. s. dollars ) 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 sources : hedge fund research, world federation of exchanges ( fibv ), bank for international settlements ( bis ) and swiss re economic research & consulting. • an important dimension of the greater diversification of risk has been the increased international financial integration. in the last decade industrial countries ’ gross external financial assets and liabilities more than doubled in proportion to gdp, reaching 320 per cent ( fig. 5 ). fig. 5 - gross stocks of foreign financial assets and liabilities ( sum of financial assets and liabilities in percent of gdp ) industrial countries emerging countries source : imf ( lane – milesi - ferretti database ). ( 1 ) for each group, weighted average calculated using gdp weights. as a consequence, the range of financing and investment opportunities available to economic agents widened, as reflected in the composition of the balance sheets of firms and households. in particular : • the set of corporate finance instruments used by euro - area firms has broadened. in the first three years after the introduction of the single currency, the net issuance of corporate bonds accelerated dramatically ( fig. 6 ). the marked deceleration that has been observed in the most recent years reflects, on one side, the impact of corporate scandals, but also, on the other side, the greater availability of bank credit resulting from credit market innovations. fig. 6 - external financing of euro - area non - financial corporations ( net issuance ; annual growth rates ) total external financing bank loans quoted shares debt securities source : ecb. • the market has also broadened, not only in terms of the instruments available but also with respect to the increasing access of a larger number of firms, including those with lower ratings. this increased availability of funds has been extensively used to finance m & a activities. • between 1995 and 2006 the composition of euro - area households ’ financial assets has progressively shifted away from traditional instruments, such as banknotes and deposits, to more sophisticated financial assets whose prices are more sensitive to market movements and credit risk. the share of bonds,

point out that the canadian economy continues to adjust to global developments and to the associated changes in relative prices. as i said at the beginning, world economic growth will remain robust — around 4 per cent this year and next. against this backdrop, our assessment is that the canadian economy as a whole is currently operating at its production capacity. and we expect it to keep on growing roughly in line with its production potential through 2007. specifically, we project annual average growth of 3. 1 per cent this year and 2. 9 per cent in 2007. for new brunswick, we are looking for a slight pickup in growth in 2006 – 07 — to about 2 3 / 4 per cent from 2 1 / 2 per cent in 2005 — mainly boosted by investment projects such as the lng facility i mentioned earlier. total cpi inflation for all of canada, which was at 2. 3 per cent in the fourth quarter of 2005, will continue to reflect changes in the prices of crude oil and natural gas. but it should return to the 2 per cent target by the first half of 2007. so should core inflation which, in the closing months of 2005, was at 1. 6 per cent. as always, there are both upside and downside risks to our projections. for 2006, the risks relate to the world economic outlook and the adjustment of our economy to global developments. these risks appear to be balanced. but through 2007 and beyond, the risks are tilted to the downside as the unwinding of global imbalances could involve a slowdown in world economic activity. with our economy operating at capacity and expected to grow roughly at potential through the projection period, on 24 january we raised the policy interest rate by another 25 basis points to 3 1 / 2 per cent. and we indicated that, in line with our base - case projection and current assessment of risks, some modest further increase in the policy interest rate would be required to keep aggregate supply and demand in balance and inflation on target over the medium term. concluding thoughts let me conclude by summarizing my key points. first, because our economy is very open to world trade and finance, we need to recognize today's global economic realities and to have the flexibility to adjust accordingly. second, sound economic policies have a critical role to play in facilitating the necessary adjustments. such policies include, importantly, a monetary policy aimed at keeping inflation low, stable, and predictable — to which the bank of canada is fully committed. third, based on our history,