Thank you, Mr. Chair, and thank you, committee members. It's a great pleasure for me to appear today before this committee for the first time as Governor of the Bank of Canada. I'd like to say at the outset that we at the bank appreciate the opportunity to meet with this committee, usually following, as you said, Chair, the release of our monetary policy reports.
These meetings are very important in terms of our accountability to Canadians since they allow us to keep members of Parliament and, through you, all Canadians informed of the bank's views on the economy, the objective of monetary policy, and the actions we take to achieve that objective.
These meetings have also been very valuable for the bank over the years, and Paul Jenkins and I look forward to continuing them during the course of the coming years.
Before we take your questions, I would like to very quickly give you some of the details of our monetary policy report that, as you mentioned, was released last week.
Growth in the global economy has weakened since the January Monetary Policy Report Update, reflecting the effects of a sharp slowdown in the U.S. economy and ongoing dislocations in global financial markets. Growth in the Canadian economy has also moderated. Buoyant growth in domestic demand, supported by high employment levels and improved terms of trade, has been substantially offset by a fall in net exports. Both total and core CPI inflation were running at about 1.5% at the end of the first quarter, but the underlying trend of inflation is judged to be about 2%, which is consistent with an economy that is running just above its production capacity.
The U.S. economic slowdown is now projected to be deeper and more protracted than was expected at the time of the January Update. Our latest projection reflects a more pronounced impact on consumer spending from the contraction in the U.S. housing market and from significantly tighter credit conditions.
The deterioration in economic and financial conditions in the United States will have direct consequences for the Canadian economy. First, exports are projected to decline, exerting a significant drag on growth in 2008. Second, turbulence in global financial markets will continue to affect the cost and availability of credit. Third, business and consumer sentiment in Canada are expected to soften somewhat.
Nevertheless, domestic demand is projected to remain strong, supported by firm commodity prices, high employment levels, and the effect of cumulative easing in monetary policy. We project that the Canadian economy will grow by 1.4% this year, 2.4% in 2009, and 3.3% in 2010. The emergence of excess supply in the economy should keep inflation below 2% through 2009. Both core and total inflation are projected to move up to 2% in 2010 as the economy moves back into balance. There are both upside and downside risks to the bank's new projection for inflation, and these risks now appear to be balanced.
In line with this outlook, some further monetary stimulus will likely be required to achieve the inflation target over the medium term. Given the cumulative reduction in the target for the overnight rate of 150 basis points since December, including the 50 basis point reduction announced last week, the timing of any further monetary stimulus will depend on the evolution of the global economy and domestic demand and their impact on inflation in Canada.
Mr. Chair, Paul and I would now be very pleased to answer your questions.