BMO Financial Group - Outlook 2005(1.1Mb pdf File) - Boardwalk REIT

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10 In 2004, exports recovered from various shocks... Exports Y/Y% Change 20.0 15.0 10.0 5.0 0.0 -5.0 -10.0 -15.0 Jan-02 ...and low interest rates boosted household spending... Consumer Spending Y/Y% Change 4.0 3.0 2.0 1.0 0.0 2002:Q1 Jul-02 Q3 Jan-03 2003:Q1 Jul-03 Q3 Jan-04 2004:Q2 Jul-04 ...and business investment. Manufacturing Shipments Y/Y% Change 15.0 12.0 9.0 6.0 3.0 0.0 -3.0 -6.0 -9.0 Jan-02 Housing Starts Thousands of units, Annualized 260.0 240.0 220.0 200.0 180.0 Jul-02 160.0 Jan-02 Jul-02 Jan-03 Jan-03 Jul-03 Jul-03 Jan-04 Jan-04 Jul-04 Jul-04 quarters of 2004, Canadian firms have benefited from solid demand from their main export market. …though not likely to be sustained Looking ahead to the second half of 2004 year, given the lagged impact of the exchange rate historically on exports, we expect less robust growth. This will be the main factor sending the quarterly GDP growth rate back down to 3¼% over the last two quarters of 2004. Investment to take up some of the slack Despite this weakening, the expected overall growth rate remains relatively robust. This reflects a number of factors. Though the Bank of Canada started to push interest rates higher in September, real rates remain historically low. This is expected to keep household spending solid and contribute to sending business investment on a strong upward trend. The strength in the latter is will also likely be abetted by high commodity prices and an attendant boost to profits. Both energy and non-energy commodity prices are supported by strong global demand, particularly in China and the US. Business Fixed Investment Y/Y% Change 6.0 4.0 2.0 0.0 -2.0 -4.0 -6.0 2002:Q1 Q3 2003:Q1 Q3 2004:Q1 Growth in 2004 will double that of 2003 For 2004 as a whole, these various trends will send GDP up 3.4% on a fourth quarter-over-fourth quarter basis. This would represent a doubling of growth relative to 2003. However, it would also be about one-half of a percentage point below the comparable US growth rate. As suggested a year ago in Outlook 2004, this under-performance is expected to be largely the result of the strong Canadian dollar. In 2005, exports will be limited by the high Canadian dollar... The restraining effect on exports from the strong Canadian dollar is expected to
11 In 2005, the high C$ will restrain exports... Exchange Rate US$/C$ 0.80 0.75 continue into 2005, albeit diminish as the year progresses. The negative impact on exports will be tempered by a US economy continuing to grow at a solid pace. In contrast, the restraining effect from rising interest rates is expected to intensify moving through 2005. This will mainly affect interest rate-sensitive areas of the economy such as residential investment and consumption of durables. 0.70 0.65 0.60 Jan-02 ...while households will face rising interest rates. Overnight Rate % 5.0 4.0 3.0 2.0 1.0 2003:Q1 2004:Q1 Jul-02 2005:Q1 FORECAST 2006:Q1 Jan-03 Jul-03 4.0 2003:Q1 Jan-04 10-year GoC Bond Yield % 6.0 Jul-04 Higher profits and utilization rates will boost investment. Corporation Profits Before Taxes Y/Y% Change 35.0 25.0 15.0 5.0 -5.0 -15.0 -25.0 -35.0 2001:Q1 2002:Q1 2003:Q1 2004:Q1 5.5 5.0 4.5 85 84 83 82 81 80 2001:Q1 2004:Q1 Capacity Utilization Level 2002:Q1 2005:Q1 FORECAST 2003:Q1 2006:Q1 2004:Q1 Despite the rise in interest rates and attendant weakening in consumption of durables, monetary conditions will remain sufficiently stimulative that overall growth in consumer activity will continue to expand at a solid 3.0%. This will, however, be down from the 3.7% pace expected in 2004. …though investment will again provide an offset Rising interest rates will also be a restraining factor on business fixed investment. However, this effect is expected to be more than offset by other factors. Commodity prices are expected to remain high keeping profitability strong. As well, solid domestic demand since the 2000-01 slowdown, and attendant rise in capacity utilization rates, should encourage businesses to undertake even greater capital expenditure next year. As a result, business investment is expected to continue to trend higher and thus take a greater role leading the expansion in 2005. Our assumption for oil prices is that they will moderate from recent peaks, though remain high and average US$36/barrel in 2005. This represents an upward revision from the US$28/barrel we were expecting as recently as July. However, this upward revision is expected to exert only a small dampening impact on
Page 3 and 4: OUTLOOK 2005 United States Outlook
Page 5 and 6: 3 United States Outlook Economy gai
Page 7 and 8: 5 Rising interest rates... 10-year
Page 9 and 10: 7 Tame inflation will allow the Fed
Page 11: 9 Canada Outlook Canada hit by nume
Page 15 and 16: 13 Though rates will rise in both C
Page 17 and 18: 15 Canada’s Regional Outlook Afte
Page 19 and 20: 17 have been trending downward sinc
Page 21 and 22: 19 fees and fines. Despite rising t
Page 23 and 24: 21 non-residential investment, and
Page 25 and 26: 23 The mining and oil and gas secto
Page 27 and 28: 25 average, with growth of 3.1% in
Page 29 and 30: 27 While interest rates are still l
Page 31 and 32: 29 moderate to 6.7% next year after
Page 33 and 34: 31 Global oil supply outpacing dema
Page 35 and 36: 33 This year's surge in oil prices

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