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

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4 The recovery has remained on solid ground in 2004... Gross Domestic Product Q/Q% Change, Annualized 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 2001:Q1 ...with businesses now leading the way... Equipment and Software Investment Q/Q% Change, Annualized 25.0 15.0 5.0 -5.0 -15.0 -25.0 2001:Q1 ...and households still spending briskly. Personal Consumption Expenditure Q/Q% Change, Annualized 8.0 7.0 6.0 5.0 4.0 3.0 2.0 Q3 2002:Q1 2003:Q1 2002:Q1 2004:Q1 Q3 FCT FCT 2003:Q1 Non-residential Construction Q/Q% Change, Annualized 15.0 5.0 -5.0 -15.0 -25.0 -35.0 2001:Q1 Q3 2002:Q1 Existing Home Sales Millions of units, Annualized 7.0 6.5 6.0 5.5 2004:Q1 2003:Q1 FCT Q3 2004:Q1 FCT EST auto sales figures point to a healthy 4¼% rebound in personal consumption in the third quarter. Expansion to slow slightly in 2005… Growth is poised to moderate somewhat in 2005, though remain above potential. Rising interest rates in 2004 and early 2005 are estimated to reduce growth by three-quarters of a percentage point in 2005 on a fourth quarter-over-fourth quarter basis. In particular, the still frothy housing market should lose some steam as rising mortgage rates undermine affordability. Housing starts are poised to pull back to an annual rate of 1.67 million in 2005 from an estimated 1.91 million in 2004. After topping US$52 per barrel in early October 2004 – up from $32 a year ago – crude oil prices are projected to retrace to about $33 by late 2005. Nonetheless, given both the contemporaneous and lagged effect of rising prices on demand, the run-up in energy costs will likely subtract one-half of a percentage point from growth in the second half of 2004 and the first half of 2005. By the second half of 2005, falling oil prices should start to support growth. Fiscal policy is poised to contribute less to economic growth in 2005 than in 2004 regardless of the outcome of the upcoming presidential election. Policymakers will need to tighten the fiscal purse strings in order to rein in the deficit. 1.0 0.0 2001:Q1 2002:Q1 2003:Q1 2004:Q1 5.0 2001:Q1 2002:Q1 2003:Q1 2004:Q1 Countering these negative factors, growth will be underpinned by several positive influences. Strong profit growth and rising confidence in the sustainability of the expansion should support business investment. The past weakness in the dollar, together with a strengthening
5 Rising interest rates... 10-year Government Note Rate % 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2002:Q1 Q3 2003:Q1 Q3 2004:Q1 ...will temper the pace of expansion in 2005... Q3 2005:Q1 FORECAST Q3 2006:Q1 Q3 global economy, suggests that the external sector will add to GDP growth in 2005 after subtracting from it in 2004. In addition, though household debt has risen to a record high relative to personal incomes, assets have climbed even faster largely as a result of rising home prices and recovering equity markets. In the second quarter of 2004, household net worth stood at a record high US$45.9 trillion, up 11% from the year-earlier period and 19% from the recent trough in the third quarter of 2002. Therefore, barring a downturn in asset prices, the so-called “wealth effect” will continue to support household spending in 2005. Gross Domestic Product Q/Q% Change, Annualized 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2002:Q1 Q3 ...though the jobless rate should decline further. Unemployment Rate % 6.5 6.0 5.5 5.0 4.5 2002:Q1 Q3 2003:Q1 Q3 Non-inflationary rate 2003:Q1 Q3 2004:Q1 2004:Q1 Q3 Q3 2005:Q1 2005:Q1 FORECAST Q3 2006:Q1 FORECAST Q3 2006:Q1 Q3 Q3 …but joblessness should still fall… Continued above-potential growth should allow the unemployment rate to drift down from an expected 5.4% in the fourth quarter of 2004 to 5.1% by the end of 2005 and to 5.0% by late 2006. This means the economy will be operating at “full employment” – the jobless rate associated with stable inflation pressures in the long run – in about two years time. …assuming that productivity moderates Despite the rapid pace of output growth in recent years, job growth has been surprisingly weak. From 2001Q1 to 2004Q2, real GDP expanded 9.1% but nonfarm payrolls shrank by one million workers. Firms managed to produce more output with fewer workers because of rising productivity. Output-per-hour worked rose a phenomenal 14.8% over this 3½-year span. If productivity had grown a couple of percentage points less, payrolls would have expanded by more than one million. If only because the recent pace is so far beyond the norm, productivity growth is
Page 3 and 4: OUTLOOK 2005 United States Outlook
Page 5: 3 United States Outlook Economy gai
Page 9 and 10: 7 Tame inflation will allow the Fed
Page 11 and 12: 9 Canada Outlook Canada hit by nume
Page 13 and 14: 11 In 2005, the high C$ 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 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

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

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