plan that g - 20 leaders outlined in the early days of the crisis, the g - 20 framework, was designed to deliver strong, sustainable and balanced growth. it had four critical and mutually reinforcing parts : ( 1 ) meaningful fiscal consolidation in overly indebted countries ; ( 2 ) sweeping financial sector reform ; ( 3 ) wideranging structural reforms to boost future growth prospects ; and ( 4 ) a necessary rebalancing of global demand between deficit and surplus countries, assisted by more flexible, marketdetermined, exchange rates. the first three parts of the plan would inevitably have contractionary effects in the short run, so a domestic - led expansion of demand in surplus countries was a critical component of the g - 20 plan if global deflation was to be avoided. any positive confidence effects that might be associated with promises of fiscal rectitude and substantive structural reform were likely to be small and insufficient, on their own, to correct the widening output gap. bis central bankers ’ speeches so how have we done? it is safe to say that global economic performance over the past five years has been disappointing. as acknowledged in various g - 20 communiques, growth has been neither strong, nor sustainable nor balanced. shortly after the crisis and the announcement of the g - 20 framework, economists at the bank of canada decided to use their global model to examine three very different scenarios for how the global economy might unfold. the first was the so - called “ good ” scenario, where every player did what it had promised and all four parts of the plan were delivered. it is important to stress, however, that this was not a goldilocks scenario by any means, just something that, in a rough and ready way, would satisfy the requirements of the g - 20 framework. the second scenario was a “ bad ” one, in which no one initially did what they were supposed to. but it assumed that eventually everyone would come around, after a substantial lag, and do the right thing. without this assumption the model and, presumably, the global economy, would explode. the third scenario was actually worse than the bad one, at least for the first few years of the simulation, and our economists called it the “ ugly ” scenario. it involved doing only half the job. more specifically, only the first three parts of the g - 20 framework, which were inherently deflationary, were set in motion. the estimated cumulative costs to the global economy from following

months. after rising at an annual rate of about 3 percent over the first three quarters of last year, real disposable income has since increased at only about a 1 percent annual rate, reflecting weaker employment conditions and higher prices for energy and food. concerns about employment and income prospects, together with declining home values and tighter credit conditions, have caused consumer spending to decelerate considerably from the solid pace seen during the first three quarters of last year. i expect the tax rebates associated with the fiscal stimulus package recently passed by the congress to provide some support to consumer spending in coming quarters. in the business sector, the pullback in hiring that i noted earlier has been accompanied by some reduction in capital spending plans, as weaker sales prospects, tighter credit, and heightened uncertainty have made business leaders more cautious. on a more positive note, the nonfinancial business sector remains financially sound, with liquid balance sheets and low leverage ratios, and most firms have been able to avoid unwanted buildups in inventories. in addition, many businesses are enjoying strong demand from abroad. although the prospects for foreign economic growth have diminished somewhat in recent months, net exports should continue to provide considerable support to u. s. economic activity in coming quarters. overall, the near - term economic outlook has weakened relative to the projections released by the federal open market committee ( fomc ) at the end of january. it now appears likely that real gross domestic product ( gdp ) will not grow much, if at all, over the first half of 2008 and could even contract slightly. we expect economic activity to strengthen in the second half of the year, in part as the result of stimulative monetary and fiscal policies ; and growth is expected to proceed at or a little above its sustainable pace in 2009, bolstered by a stabilization of housing activity, albeit at low levels, and gradually improving financial conditions. however, in light of the recent turbulence in financial markets, the uncertainty attending this forecast is quite high and the risks remain to the downside. inflation has also been a source of concern. the price index for personal consumption expenditures rose 3. 4 percent over the twelve months ending in february, up from 2. 3 percent over the preceding twelve - month period. to a large extent, this pickup in inflation has in february, sales of existing homes are reported to have turned up slightly, but sales of new homes continued to move down. been the result of sharp increases in the prices of crude oil