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Since the May Report, the international economic environment has continued to improve. Economic activity abroad grew faster than expected, while inflation in the major economies remained subdued.

Privatization—the transfer of activities from the public to the private sector—gained international prominence in the 1980s because of the need to reduce budget deficits and growing concerns about the efficiency of state-owned enterprises and government bureaucracies. This article examines privatization in Canada and its effect on governments' fiscal positions. Privatization has generally been less rapid and extensive in Canada than elsewhere, partly because of the comparatively moderate size of our public sector. Nevertheless, federal, provincial, and municipal governments have increasingly reduced their direct involvement in the Canadian economy by selling Crown corporations, contracting with private firms to deliver public services, and transferring the development of public infrastructure projects to the private sector. The fiscal impact of privatizing Crown corporations varies with such factors as the profitability of the enterprise, the size of the government's initial investment, and past write-downs. In general, when privatizations are part of a broader effort to improve public finances, they can contribute to fiscal consolidation by reducing budgetary requirements and debt levels. When services and infrastructure projects are privatized, it is expected that more efficient private sector management will reduce government expenditures. For example, a private consortium may be better able to manage the financial risks involved in building an infrastructure facility, such as cost overruns or the withdrawal of contractors, than the public sector. The key to raising efficiency and lowering costs, however, is competition, not privatization per se. Therefore, the cost savings arising from the privatization of services or public works depend crucially on the terms of the contract. Overall, when structured to improve economic efficiency, privatization is likely to enhance the economy's performance, thereby producing long-term economic and budgetary gains.

In the last half-year, the economic expansion in Canada has become well established, supported by low inflation, highly stimulative monetary conditions, and a strong U.S. economy.

We study how different types of monetary policy shape the distributional effects of external economic shocks on households’ consumption in a small open economy. Our results present a trade-off between maintaining overall stabilization and controlling consumption inequality.

At the Bank of Canada, we have worked hard over the past several years to define our goals and our methods for achieving them. We have continued to strengthen our monetary policy framework, and we have established priorities in all areas of our operations to help us meet our strategic objectives. In 2002, the Bank set out a medium-term plan for the period 2003–05. The plan’s clearly defined policy frameworks and priorities were critical in guiding our analysis and our decisions in 2003, a year in which Canadians across the country were affected by a number of severe and unanticipated events.

In the April Monetary Policy Report, the Bank noted that inflation was well above its 2 per cent target and that short-term inflation expectations had edged up.

The Canadian economy continues to adjust to major global developments.

Since the last Report, the Canadian economy has advanced broadly in line with expectations.

The Canadian economy continues to operate just above its full production capacity, and the near-term outlook for core inflation has moved slightly higher.

Over the past year, Canada’s economy has outperformed the economies of virtually all the other major industrial countries.