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

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18 Oil production takes a breather in Newfoundland. Newfoundland Oil Production Millions of barrels, annual 150 FORECAST Nova Scotia After posting the lowest growth rate among the provinces in 2003, Nova Scotia’s economy has picked up in 2004 and should strengthen further in 2005. We project real GDP growth of 2.1% in 2004 and 3.0% in 2005. 120 90 60 30 0 Natural gas production declining gradually in Nova Scotia. Nova Scotia Natural Gas Production Millions of cubic metres per month New Brunswick's employment picture brightens. New Brunswick Employment % Change 3.5 3.0 2.5 600 500 400 300 200 100 1997 0 2000 1999 2001 2001 2002 2003 2003 2005 2004 FORECAST In 2004, signs of improvement have been evident, although a few negatives still cast a shadow on the province’s economic performance. Housing starts, which reached a 16-year high of 6,100 units in 2003, have fallen to about a 4,800 pace in 2004, in part due to a moratorium until late 2005 on large housing developments in some areas of Halifax. Natural gas production was down in the first eight months of 2004, as output from the Sable Offshore Energy Project weakened. Further, recent disappointing drilling results slowed offshore energy exploration activity. However, the positives outweighed the negatives. Employment, manufacturing shipments, and the value of building permits showed good gains through the summer. Consumers have also jumped on board the expansion train. After almost stalling in 2003, retail sales have accelerated sharply since the beginning of 2004. These economic indicators suggest considerable momentum going into 2005. 2.0 1.5 1.0 0.5 0.0 -0.5 2000 2001 2002 2003 2004 Nova Scotia’s economy is also benefiting from the fact that it is the only Atlantic province not undergoing significant fiscal restraint. Nova Scotia was one of only two provinces to run surpluses in the 2003-04 fiscal year. In its 2004-05 budget, the government cancelled part of a previously implemented 10% personal income tax cut, implemented a higher tax rate on high-income earners, raised the tobacco tax and the corporate capital tax, and increased a number of government
19 fees and fines. Despite rising taxes, the fiscal stance is considered roughly neutral as the additional revenues funded a hefty 5.4% increase in program spending. We expect the fiscal stance in 2005-06 to remain neutral. Going forward, Nova Scotia’s economy will benefit from solid growth in North America, which should boost demand for its goods and services. It will also be stimulated by a number of specific projects, including the ongoing cleanup of Halifax harbour and the Sydney tar ponds. Tier II of the Sable Offshore Energy Project should come on stream in late 2004, boosting natural gas production. Possible development of the Deep Panuke offshore natural gas project (the current status appears to be in limbo) and a possible liquid natural gas terminal on Cape Breton Island would further boost economic activity. New Brunswick After encountering a number of economic challenges in 2003, the New Brunswick economy has had a relatively smoother ride in 2004. Economic indicators in 2004 point to somewhat stronger growth of 3.0% this year, up from 2.6% in 2003. After a decline last year, vigorous export growth has resumed. Job creation has picked up smartly. The province’s manufacturers have more than tripled their pace of growth (as measured by shipments) through midyear. Though residential construction activity has moderated from last year’s peak, it remained relatively robust, with 3,500 new housing units projected in 2004, still above the past ten-year average. New Brunswick’s economic performance in 2005 should match that in 2004, with a repeat expansion rate of 3.0%. We expect employment growth to continue at a healthy pace, allowing a slight drop in the unemployment rate. Employment gains should give a boost to consumer spending – which has been quite weak through most of 2004 – starting later in the year and continuing into 2005. Capital spending is expected to remain strong, due to the ongoing twinning of the TransCanada highway and the beginning of construction of a $750 million liquid natural gas terminal, which received regulatory approval in August and is expected to go into operation in 2007. However, on the residential side, housing starts are projected to moderate further in 2005, as interest rates rise. The generally upbeat assessment in the near term is somewhat tempered by fiscal restrain, and the unexpected closure of two of the province’s paper mills in September. The province’s 2004 budget called for about 750 civil service positions to be eliminated and program spending to rise only 0.8%. Taxes on small businesses were reduced, but the government’s revenue loss was more than offset by increases in various government service fees and fines. The good news is that fiscal restraint should return the province to a surplus position in the fiscal year ending in March 2005, which suggests that there will be less need for additional restraint in 2005-06. Québec Québec’s economy gained momentum in 2004, after it grew a mere 1.6% in 2003, when exports dragged down an otherwise positive performance. In 2004, while the domestic economy slowed slightly, the external sector has provided much stimulus. Any doubts about the export revival were allayed by an annualized 18% jump in real exports in the second quarter. Consumption remains a source of strength, notwithstanding some slowing midyear. Consumption should benefit later this year and next from an improving labour market and the $1-billion tax cut that comes into effect in 2005. Employment growth was weak in the first half of 2004, with what growth there was
Page 3 and 4: OUTLOOK 2005 United States Outlook
Page 5 and 6: 3 United States Outlook Economy gai
Page 7 and 8: 5 Rising interest rates... 10-year
Page 9 and 10: 7 Tame inflation will allow the Fed
Page 11 and 12: 9 Canada Outlook Canada hit by nume
Page 13 and 14: 11 In 2005, the high C$ will restra
Page 15 and 16: 13 Though rates will rise in both C
Page 17 and 18: 15 Canada’s Regional Outlook Afte
Page 19: 17 have been trending downward sinc
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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