BMO Financial Group

BMO Financial Group

March 20, 2013 07:00 ET

BMO Harris Private Banking Market Outlook: Economy Rallies in North America

- U.S. employment and manufacturing business strengthened

- Eurozone turbulence affects international markets

- Canadian exports still struggling, but S&P/TSX equity index had a strong February

TORONTO, ONTARIO--(Marketwire - March 20, 2013) - BMO Harris Private Banking's latest Market Outlook Commentary Report reveals that the North American economy experienced positive growth in February despite ongoing uncertainty in Europe and China.

Highlights from the report include:

Sequestration Takes Centre Stage

In the United States, President Obama and Congress were unable to come to an agreement to avert sequestration, leading to the U.S. Treasury to withhold $85 billion USD needed to run federal agencies.

"Differences in ideology are sidetracking U.S. policy makers from negotiating a compromise on the deficit, which industry reports suggest will significantly slow economic growth and damage confidence in the U.S. economy," said Daniel Theriault, Chief Investment Strategist, BMO Harris Private Banking. "But behind the scenes, both sides are working towards an agreement that will likely emerge over the next three to six months and further stimulate the economy."

Despite the political situation in the U.S., its economy continues to improve. The report noted:

  • Employment grew by 157,000 new jobs in January
  • Manufacturing and non-manufacturing business activity was strong

Confusion in the Eurozone

The report stated that unease returned to Europe in the wake of the anti-austerity Italian election results, Britain's loss of its triple-A credit rating and troubling events in Spain. Additionally, high labour costs and weaker productivity has eroded the competitiveness of French exporters, and Holland's economy slipped as well. As a result, international markets have suffered and concerns are being voiced about Europe's northern economies.

"This volatile market environment will likely continue until governments in Europe start to focus on measures that will reduce debt and bolster growth," said Mr. Theriault. "The global economic recovery could begin to get back on track after that occurs."

Canada Remains Hopeful

Companies in Canada's mining and construction sectors have been reluctant to spend in the last few months. The effect of this was twofold: the pace of business investment stalled, and markets began to falter because investors grew wary.

The materials sector dragged down overall economic performance, an indication that a full export recovery is still in the early stages.

"Canada's export sector relies heavily on robust economies in the U.S. and China, neither of which has hit their stride yet," said Mr. Theriault. "But lower mortgage rates could spur demand in the cooling housing market, which could give the Canadian economy a boost."

Favourable Canadian economic growth signs were also noted in the report, including the fact that the S&P/TSX equity index delivered respectable returns for February - 1.08 per cent, continuing the momentum from January."

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