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

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22 Residential construction has been robust in Manitoba recently, with housing starts estimated to hit 4,400 in 2004 – the highest level in 16 years. Starts are projected to taper off in 2005 but remain relatively high at 3,600 units. Non-residential construction should be supported in 2005 by a number of large projects, including the $660 million expansion of the Red River Floodway. After a poor performance in 2003, we expect the manufacturing sector to make substantial gains in 2004 and 2005. In particular, the province’s two largest manufacturing export categories (food and transportation equipment) are set for strong growth. Food processing should grow smartly, thanks to continued improvements in agricultural production and relatively strong US demand. Transportation equipment manufacturing (mostly airplanes and buses) should improve as the North American travel outlook brightens and many US cities upgrade their bus fleets. Agricultural prospects also look encouraging as soil moisture conditions have continued to improve following the 2001-02 drought. Reflecting higher prices, farm cash receipts have risen solidly in 2004. Our forecast assumes average crop yields in both 2004 and 2005. Hydroelectric production has rebounded in 2004, after low water levels reduced output in 2003. Water flows are now above normal, which will result in ongoing strength in hydro sales. Longer term, the outlook for hydro looks bright. The province is examining a number of hydroelectric developments that would result in increased sales to Ontario and Saskatchewan. Public sector restraint will weigh on the economy this year and next. On a consolidated basis, the 2003-04 deficit hit $531 million, largely due to the poor performance of Manitoba Hydro, which in turn was a result of the low water flows mentioned earlier. For 2004-05, the government budgeted for the deficit to fall to $58 million, thanks to fiscal restraint and an expected improvement at Manitoba Hydro. Four hundred civil service positions will be cut and base program spending is to rise only 1.4%. While program spending is budgeted to rise at a somewhat faster pace in 2005-06 (2.6%), it would remain well below the rate of nominal GDP growth. Labour market conditions have been rather tepid in 2004, with sluggish employment and a modest upward tilt to the jobless rate. Nevertheless, at a projected 5.2% for 2004 as a whole, the jobless rate in Manitoba would be second lowest in Canada, after that in Alberta. Labour earnings growth has been far better than in Canada as a whole, providing solid support for consumer spending. Retail sales are projected to rise by close to 8% in 2004, almost double the national rate and second fastest after Alberta. In 2005, continued solid growth in employment should reduce the unemployment rate even further to 5.1%. Saskatchewan Saskatchewan posted a healthy increase in GDP of 4.5% in 2003, thanks to the end of a two-year drought that had caused crop production to plummet between 2000 and 2002. Crop output rose substantially (46%) in 2003 to 21.8 million tones, though it remained below its ten-year average of 23.7 million tonnes. Good soil moisture conditions early in the 2004 growing season fostered hopes for a bumper crop this year. Unfortunately, cool, wet weather late in the summer and, in some places, early frost, dashed such expectations. Saskatchewan Agriculture’s latest crop production estimate (September 27th) pegged 2004 production at 25 million tones. While production is above average in quantity, it is likely be below average in terms of quality.
23 The mining and oil and gas sectors are doing well. Potash production and prices are well above last year’s levels as a result of strong global demand. Uranium mining is also benefiting from firm demand and high prices. Mineral fuels exploration, development, and extraction continue to be strong, due to skyhigh energy prices. Oil production has been virtually flat recently but gas production has registered solid gains. Manufacturing has been another source of strength, with healthy gains in food processing and petroleum and coal products. While running a little below the previous year’s pace on an annualized basis, retail sales have recently strengthened and should remain solid in 2005. We expect the contribution of consumer spending to Saskatchewan’s economic expansion to increase in 2005 as retail sales growth rises to 4.8%. Construction activity is likely to weigh on the province’s economy next year. Housing starts are poised to hit 3,400 in 2004 and then slip to 3,000 units in 2005 as interest rates rise. On the non-residential side, a substantial decrease in the value of building permits issued suggests softer conditions ahead in that segment of the market. Public sector restraint will also be a drag on growth. In order to keep the deficit under control, the government increased the provincial sales tax by one percentage point in its spring budget, cut 500 civil service positions, and held program spending to a 0.9% increase in 2004-05. Despite these measures, the deficit is still expected to rise from $147 million in 2003-04 to $287 million in 2004-05. In 2005- 06, program spending is slated to rise only 1.1%. All told, healthy conditions for agriculture, mining, oil and gas, and manufacturing should lift economic growth in Saskatchewan to 3.0% in 2004. An assumed return to average crop yields and a weakening of oil, gas and potash prices is expected to moderate growth to 2.5% in 2005. Alberta With oil prices rising above US$50 a barrel, it’s a great time to live in Alberta. Alberta should lead the country in economic expansion this year and next, with growth of 4.0% in each year. Almost all economic indicators are pointing upward. Employment has continued to rise at a brisk pace, with strong gains in construction, mineral mining, and oil and gas extraction. Exports, manufacturing shipments, and retail sales have all been rising by more than 10%. And, wage gains have been amongst the strongest in the country. Only the housing market is looking at declines this year. After topping 36,000 units in 2003, housing starts are projected to decline to just under 34,000 in 2004. Even the agricultural sector is showing strength, despite the ban on live cattle exports to the United States. Farm cash receipts are up by more than 8%, with gains for grains, oilseeds, hogs and poultry more than offsetting losses by cattle operations. In 2005, high energy prices, though off their 2004 peaks, should sustain construction and oil and gas sector activity. The Alberta government’s inventory of major projects currently under construction, proposed, or recently completed lists 1,047 projects with a value totaling $94 billion in September (up 16% from a year earlier). Two-thirds of these projects, by value, are in the oil and gas sector. Manufacturing should also continue to do well, with healthy gains by food processors, metal fabricators, and manufacturers of wood products, computers and electronics, and machinery and equipment.
Page 3 and 4: OUTLOOK 2005 United States Outlook
Page 5 and 6: 3 United States Outlook Economy gai
Page 7 and 8: 5 Rising interest rates... 10-year
Page 9 and 10: 7 Tame inflation will allow the Fed
Page 11 and 12: 9 Canada Outlook Canada hit by nume
Page 13 and 14: 11 In 2005, the high C$ 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 and 20: 17 have been trending downward sinc
Page 21 and 22: 19 fees and fines. Despite rising t
Page 23: 21 non-residential investment, and
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

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

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