BMO Financial Group

BMO Financial Group

December 15, 2011 15:53 ET

BMO Experts Look Back at 2011, Announce Predictions for 2012

TORONTO, ONTARIO--(Marketwire - Dec. 15, 2011) - BMO Financial Group's top economic and market strategists reviewed the events of the past year and made their predictions for 2012 today.

Doug Porter, Deputy Chief Economist, BMO Capital Markets


  • Last year we called for 2.7 per cent GDP growth in 2011, and it now looks like it will come in at 2.3 per cent. The modest gap largely reflected the many shocks that hit the global economy and Europe's deepening woes. If anything, Canadian employment and housing did better than expected, although the consumer fared roughly as expected.
  • We had expected the Bank of Canada to hold rates steady for a time, before starting to gradually lift them, but the Bank stayed on the sidelines for the entire year. The global shocks - especially in Europe - kept the Bank on hold.
  • Our call on the regional outlook was essentially on the mark. A soft U.S. backdrop weighed on Ontario, while the Western provinces benefited from still-strong commodity prices.


  • By keeping rates at 1 per cent since October 2010, this is the longest period of stable borrowing costs since the early 1970s. The combination of a highly uncertain global outlook, more modest domestic spending growth, and the Fed still taking steps to ease policy will keep the Bank on ice next year.
  • From Stimulus To Restraint: We have recently nudged up our Canadian GDP growth outlook for next year to 2 per cent, but this is a bit below both this year's result (2.3 per cent) and the U.S. forecast for next year. We will see fiscal policy shift more notably to restraint from about neutral in 2011, with both the federal and many provincial governments leaning more heavily on the brakes.
  • Canadian Dollar Stays Just Below Par: Despite Canada's many inherent advantages, the loonie dipped against most other major currencies (including the euro) in 2011. We look for the Canadian dollar to remain a bit below parity in the coming year, held back by an uncertain and softer global economic backdrop.

Andrew Busch, Global Currency and Public Policy Strategist, BMO Capital Markets


  • Europe has been the significant driver of the markets this year; we have seen markets ebbing and flowing for the whole year as a result of what is happening there. This has driven values up and down, at times in multiple percentages; it has also driven uncertainty for investing and for businesses looking to invest.
  • The U.S. has had more momentum in the 3rd and 4th quarter with consumer spending holding up better than expected.
  • In China, things have slowed significantly, with GDP growth slowing to 9 per cent with a weak trajectory.


  • In Europe, we are looking at negative GDP growth in the first half of the year.
  • The European Central Bank will significantly ease monetary policy by mid-year to boost growth in second half.
  • The Euro will end up around US$1.25 by the end of the first quarter and the beginning of the second quarter of 2012.
  • In the U.S. there is uncertainty around debt and tax policy, which is being debated now.
  • We expect a payroll tax cut and jobless benefits extension to be passed by the end of the year, which will have a positive impact on growth.
  • There is the question of whether the Chinese will begin to ease back from the tightening of monetary and regulatory measures. We are just beginning to see consumer inflation easing; housing prices will also need to soften before more aggressive easing can occur.

Paul Taylor, Chief Investment Officer, BMO Harris Private Banking


  • We thought the outlook would be dominated by the end to stimulus-led growth in the U.S. and that markets would take direction from the extent to which the U.S. economy transitioned to 'organic' growth in 2011. Instead, the outlook was framed by debt crisis issues in Euroland.
  • We predicted that equities would outperform bonds, and that Canadian equities would outperform U.S. equities. However, the opposite occurred, as a result of slowing world growth and softening commodity prices.
  • Notwithstanding the above, we caught on to the transition that was taking place as we approached the middle of the second quarter of 2011. As a result, we moved to a more defensive positioning of our portfolios.


  • We think Euroland headlines will be the dominant driver for capital market returns. We anticipate no disorderly default or complete disintegration of the Euro, but we do expect slow evolution towards greater fiscal integration with a 'buyer of last resort' for troubled assets emerging.
  • Deeper into 2012, we expect capital markets to take their direction from U.S. economic growth, which we expect to be moderately strong.
  • We expect to see investor attention to focus on 'bonds that look like stocks' (bonds with higher, equity-like risk) and 'stocks that look like bonds' (stocks that pay high yields).
  • We see money flowing to safe, yield plays, in industries such as telecom, utilities and consumer staples.
  • We see upside to about 12,750 or 13,000 at the S&P/TSX, with a price-to-earnings multiple of 14.75; we expect a similar advance for the S&P 500. If we get a negative surprise from Euroland (which we don't expect), the S&P/TSX downside likely measures to about 9,500.

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