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

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