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

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16 improved. Sky-high oil prices will push Alberta back up to its customary spot at or near the top of the growth rankings. A rebound in manufacturing has fostered a moderate improvement in Ontario and Québec despite the earlier rise in the Canadian dollar. British Columbia’s economy has benefited from a booming housing market in the United States – which has boosted demand for BC wood products – and an improvement in tourism activity. Strengthening consumer spending and robust construction activity are supporting the Nova Scotia and New Brunswick economies. The manufacturing, construction and utility sectors are providing a lift to Manitoba’s economy. Only Newfoundland and Labrador, Prince Edward Island, and Saskatchewan are estimated to record lower growth this year than last. In Newfoundland and Labrador, flat oil production, strikes, and public sector restraint are taking their toll on the economy. Prince Edward Island is suffering from low potato prices, a decline in tourism, and government spending restraint. Saskatchewan should record moderate growth in 2004, but below 2003’s unusually strong rebound from drought conditions during the preceding two years. In 2005, growth should be about the same or a little higher than in 2004 in most provinces. Though commodity prices are expected to decline from their recent peaks, prices should still remain high enough to encourage investment and production in resource-based sectors. Most provinces will grow close to potential, as their recoveries gain momentum and become more balanced. Two exceptions are likely to be Prince Edward Island and Newfoundland and Labrador. We do not expect a significant improvement in Prince Edward Island’s weak tourism and agricultural sectors until next summer, which will delay a full recovery until 2006. Stronger expansion in Newfoundland awaits the start of production at the White Rose offshore oil project and the Voisey’s Bay nickel development, both in 2006. Newfoundland and Labrador After cruising along at a breakneck pace in 2003, Newfoundland and Labrador’s economy appears to have hit a bit of a rough patch in 2004, one that is likely to continue through 2005. GDP growth is expected to slow from 6.5% in 2003 to 1.7% in 2004 and 1.2% in 2005. The spectacular growth in 2002 and 2003 was largely due to increased oil production, as output at the Hibernia offshore oil field increased and the Terra Nova oil field came on line. However, oil production has since flattened out, reflecting the fact that Hibernia and Terra Nova are reaching full production. Oil production in 2004 and 2005 should be similar to 2003. By late 2005 or early 2006, the White Rose offshore oil project is expected to produce first oil, resulting in a substantial jump in production in 2006. Mining output, about 90% of which is iron ore, was expected to be a bright spot in 2004. However, ongoing strikes at the province’s two large mines in Labrador have reduced output. The resolution of these labour disputes should result in an improvement in production in 2005, while the start of production at the Voisey’s Bay nickel mine will add substantially to mining output in 2006. After a strong increase in 2003, retail sales so far in 2004 have been weak. Recent strikes in the public sector and mining industries, as well as government restraint, appear to have dampened consumer spending power and confidence. One of the few bright spots in 2004 is construction activity, bolstered by development of the White Rose offshore oil project and the Voisey’s Bay nickel mine. However, the construction phase of these projects will wind down in 2005. On the residential side, housing starts are projected to reach 2,900 units in 2004, the highest level since 1991. Nonetheless, starts peaked in February and
17 have been trending downward since. Housing starts are expected to fall to a still relatively high 2,300 units in 2005, as slower economic growth and rising interest rates take their toll. Fiscal policy also contributed to the slowdown in the Newfoundland economy in 2004, and will continue to do so in 2005. With its 2004 budget, the government implemented a plan to rein in the province’s burgeoning deficit, with a planned reduction in the consolidated deficit to $840 million in 2004-05 from an estimated $959 million in 2003-04. The 2003-04 consolidated deficit represents about 5.3% of GDP, making it one of the largest provincial deficits, relative to the size of its economy, in Canadian history. The plan includes cutting about 4,000 of 32,000 civil service positions over the next four years and implementing a freeze on public sector wages for two years. The budget plan calls for the cash deficit to be eliminated over four years. This would still leave the consolidated deficit in the $400 - $500 million range. Despite the weaker economic conditions, employment held up rather well in 2004 and is projected to rise 1.8% for the year. Gains are likely to be much weaker in 2005, with an accompanying rise in the jobless rate, as the economy slows further. Provincial Government Finances % of GDP Fiscal Balance Net debt 2003-04 2004-05 Mar.31/04 Newfoundland and Labrador -5.3 -4.7 58.7 Prince Edward Island -2.2 -0.8 32.7 Nova Scotia 0.1 0.0 42.8 New Brunswick -0.6 0.0 30.6 Québec -0.1 0.0 38.1 Ontario -1.1 -0.4 28.1 Manitoba -1.4 -0.1 26.9 Saskatchewan -0.4 -0.8 25.3 Alberta 2.3 1.6 -6.2 British Columbia -0.9 0.6 19.1 Longer-term prospects are better. White Rose and Voisey’s Bay are expected to go into production in 2006 (possibly late 2005). There is the possibility of further offshore oil field projects and development of the Lower Churchill hydroelectric resources in later years. Prince Edward Island Prince Edward Island’s economy appears to have slowed in 2004 to a 1.5% pace from 1.9% growth in 2003. Many economic indicators are pointing downward so far in 2004. Farm cash receipts have dropped sharply, largely due to weak potato prices. Employment has essentially been flat since the beginning of the year. Retail sales have been barely treading water and look poised to sink for the year as a whole. While manufacturing shipments showed strength earlier in the year, they have since softened. And, most tourism indicators are down from the same period a year earlier. One bright spot is construction. Housing starts appear set to hit 900 in 2004, the highest level since 1988. We expect rising interest rates to push starts down to 700 in 2005, but this would still be a relatively high level. On the nonresidential side, construction is benefiting from a boom in public sector building. Fiscal policy has contributed to soft economic conditions in the province. Following a 2003- 04 deficit estimated at $85 million, or 2.2% of GDP, the government increased gasoline taxes, tobacco taxes, capital taxes on financial corporations, and a number of fees. Program spending was cut 3.6%. For 2004-05, the deficit is budgeted to fall to $33 million. Further fiscal restraint will be required in 2005-06 in order to eliminate the deficit. Our forecast of 2.0% GDP growth in 2005 is based on a gradual improvement in tourism and a return to better agricultural market conditions.
Page 3 and 4: OUTLOOK 2005 United States Outlook
Page 5 and 6: 3 United States Outlook Economy gai
Page 7 and 8: 5 Rising interest rates... 10-year
Page 9 and 10: 7 Tame inflation will allow the Fed
Page 11 and 12: 9 Canada Outlook Canada hit by nume
Page 13 and 14: 11 In 2005, the high C$ will restra
Page 15 and 16: 13 Though rates will rise in both C
Page 17: 15 Canada’s Regional Outlook Afte
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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