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BMO Financial Group

June 22, 2010 09:00 ET

Quebec Enters Recovery After Faring Well in Recession-BMO

- Real GDP expected to reach 2.9 per cent growth in the next two years

- Private-sector employment just shy of pre-recession levels, with trade, finance and professional services experiencing increased hiring

- At 1.4 per cent of GDP, the deficit remains modest

MONTREAL, QUEBEC--(Marketwire - June 22, 2010) - After faring well during the recession with a smaller-than-average 1.0 per cent contraction in 2009, the Quebec economy is now in recovery mode, according to the Provincial Outlook report from BMO Capital Markets Economics (TSX:BMO)(NYSE:BMO). Real GDP should post 2.9 per cent growth in the coming two years - below the national rate.

"Manufacturing activity in the province held up relatively well during the recession thanks to the province's lack of exposure to autos and stable performance in aerospace," said Robert Kavcic, Economist, BMO Capital Markets. "As a result of the relatively mild recession, Quebec's unemployment rate, with the exception of one month, stayed below 9 per cent and is now consistently below the national rate for the first time on record back to 1976. Granted, public-sector hiring rose significantly in 2009, but the private sector has recently started to participate in the recovery. Private-sector employment is just shy of pre-recession levels, with trade, finance and professional services experiencing ramped-up hiring."

The goods sector, however, continues to languish, particularly in manufacturing which saw the lowest level of employment on record in April. With little help from the loonie or U.S. demand, the manufacturing sector will continue to carve out a very sluggish recovery, and, combined with softer-than-average population growth, points to a relatively weak trend growth rate in Quebec.

The government of Quebec is projecting a $4.5 billion deficit in fiscal 2010/11 and has taken big steps toward returning to balance in five years. "At 1.4 per cent of GDP, the deficit remains modest compared to those of the mid-1990s," noted Mr. Kavcic. Substantial progress has been made in "measures to be identified" or $5.1 billion of previously unidentified savings or revenue increases from last year's budget. This unidentified source of funds now totals just $1.1 billion by fiscal 2013/14.

The complete report can be found at www.bmocm.com/economics.

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