. investment outside the oil and gas sector is still expected to expand, nonetheless. businesses across canada tell us they plan to invest to increase competitiveness or to meet demand for their products. here ’ s the bottom line : when we take into account the impact on the global economy and commodity prices, trade conflicts and uncertainty are projected to reduce the level of canadian gdp by as much as 2 percent by the end of 2021. staff did some excellent work to inform our discussion, and you can see the results in box 2 of the mpr. they analyzed two scenarios that can be thought of as extremes : an unfavourable scenario in which trade conflicts escalate significantly, and a favourable scenario in which they are resolved. they held fiscal and monetary policy unchanged so that the economic effects would be more visible. the results are clear. the impact on growth, both globally and in canada, is much larger in the unfavourable scenario than in the favourable one. that underscores how much we all have to lose if the trade war escalates. as for inflation, it actually rises in the unfavourable scenario, even as the economy weakens. that ’ s because a full - blown trade war would affect supply. trade patterns and global value chains would be severely disrupted. this would lower productivity and reduce economic potential. it would threaten our living standards. at the same time, slower global growth in this scenario reduces commodity prices and leads to a sharp decline in the canadian dollar. while a lower currency would help contain the decline in exports, it would also put strong and persistent upward pressure on prices, as would the direct effects of the tariffs. it ’ s clear that monetary policy could not simultaneously buffer the impact on growth and keep inflation in check. central banks in advanced economies have not faced this type of trade off since the 1970s. of course, during our deliberations governing council also discussed the bank ’ s ultimate mission — inflation control. our core inflation measures have averaged close to 2 percent in recent quarters. total inflation will likely dip in the upcoming months due to the dynamics of gasoline prices and some other temporary factors. it is expected to return sustainably to target by around mid - 2020 as slack in the economy is absorbed and these temporary effects wane. let me wrap this up. the canadian economy is returning to potential growth. however, the outlook is clouded by persistent trade tensions. taken together, the degree of accommodation being provided by the current policy interest rate remains

summer, the diagnosis of the economic situation in the eurozone was bright. the outlook was seen as favourable, supported by both the external and internal pillars of demand. according to the june 2007 eurosystem staff projections, gdp growth in the euro area was projected to be close to 2. 6 % in 2007 and 2. 3 % in 2008. obviously the turbulence in financial markets has clouded the prospects to some extent. the potential impact of this turmoil on the real economy is still difficult to assess. so far the effects have been limited. while euro area consumer and business confidence indicators declined in september, and most of the early indicators available fell slightly in october too, they were still above their historical averages and continued to point to ongoing sustained growth during the second half of 2007. very recently, the imf staff forecasted real gdp growth in the euro area at 2. 5 % in 2007 and 2. 1 % in 2008 and most private sector forecasts are close to these numbers. as regards the short – and medium – term outlook, i would make a distinction between the main scenario, which is the most likely outcome, and the risk assessment. the most likely scenario remains favourable with growth still close to our potential but it is now surrounded by much more uncertainty than usual. and that applies to other regions of the world. world economic growth is expected to remain robust over the medium term, despite the slowdown of the us economy, because the emerging market economies should continue to expand at a rapid pace. as the recent imf world economic outlook points out, china, india and russia have together accounted for half of global growth over the past year, and further strong expansion is also expected in other emerging markets and developing countries. this trend should improve living conditions and income for a large part of the world's population. it is also a source of continued support for euro area exports and investment. however the slowdown in the us economy could be more pronounced and the us dollar exchange rate could come under renewed downward pressure. in these conditions, it remains to be seen whether the recent signs of emerging economies de - coupling from us developments will usher in a sustainable process. another crucial question is whether the euro will continue to bear more than its share in the resorption of global imbalances. here i refer to the continuous strengthening of the exchange rate of the euro not only vis - a - vis the us dollar but also vis - a - vis the currencies of countries recording year after year