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BMO Financial Group

June 01, 2011 10:30 ET

Making Money Make Sense: Introducing the BMO Blue Book-A New Resource for Journalists, Policy-Makers and Canadian Businesses

- Canada's answer to the U.S. Federal Reserve's Beige Book gets behind the numbers

- Douglas Porter: The Canadian economy has shifted from the recovery phase to a more mature expansion

- Gail Cocker: The most encouraging news is reflected in an increasing number of firms willing and able to invest in their operations to improve their productivity

TORONTO, ONTARIO--(Marketwire - June 1, 2011) - BMO Financial Group today released the first edition of the BMO Blue Book, a joint publication of BMO Capital Markets Economics and BMO Commercial Banking. Much like the U.S. Federal Reserve's Beige Book, the BMO Blue Book combines the expertise of BMO's economists with information on current business conditions provided to BMO's commercial bankers by local businesspeople.

"The Canadian economy has shifted from the recovery phase to a more mature expansion, with real GDP now expected to grow a moderate 2.8 per cent in 2011, before easing to 2.6 per cent in 2012," said Douglas Porter, Deputy Chief Economist, BMO Capital Markets, as he commented on the BMO Blue Book's economic forecast for Canada. "At the regional level, a clear divide has emerged between the commodity-producing provinces and non-commodity provinces, and firm resource prices should continue to feed this trend. Additionally, fiscal restraint has begun to kick in, with Central and Atlantic Canada likely to feel the biggest drag due to relatively large deficits and little boost from commodity revenues. Finally, the strong Canadian dollar will also weigh more heavily on these relatively export-heavy regions.

"All told, Western Canada and Newfoundland & Labrador are expected to grow 3 per cent to 4 per cent this year, while Central Canada grows slightly below 3 per cent and Atlantic Canada lags at around a 2 per cent pace," said Mr. Porter.

"Across the country, the outlook of our business customers reflects growing, but cautious, optimism," said Gail Cocker, Senior Vice-President, Commercial and Treasury Management, BMO Financial Group. "The most encouraging news, however, is reflected in an increasing number of firms willing and able to invest in their operations to improve their productivity.

"In every region of Canada, we are seeing companies making this effort. Saskatchewan farms are investing in new equipment to work their large acreages more efficiently. Quebec high-tech manufacturers are buying new machinery from Europe. A local drinks bottler in Newfoundland & Labrador has upgraded its fleet of trucks. With more and more firms taking advantage of the opportunity, the outlook for Canada's productivity can only improve."

The BMO Blue Book includes individual reports from each province and the Greater Toronto Area. Findings include:

BC

Economics: Growth is expected to moderate to 3.0 per cent in 2011, as residential construction cools and U.S. forestry demand remains soft. Growth should hold around 3 per cent through 2012 thanks in part to strong Asian export demand and energy-sector investment.

Commercial Banking: The real story is in junior mining. We're seeing internationally based businesses in that sector build mines, sell them off and use the proceeds to start new, bigger ventures – a process helped by the current strong level of commodity prices and the high Canadian dollar. Large deals are practically routine at the moment – our BMO Capital Markets team tells us they have never seen a greater number of viable deals sitting on their desks than they do now.

Alberta

Economics: Alberta's energy sector is humming again, and after a brief hiatus during the commodity price correction, the province is expected to reclaim its position near the top of the growth leaderboard. Real GDP is expected to expand 3.6 per cent this year before moderating to 3.4 per cent in 2012.

Commercial Banking: You can feel the optimism in oil and gas—companies are starting to buy more equipment, and the utilization of that equipment is on the rise. Just as an example, utilization for oil rigs grew 50 per cent month-over-month in March. Further, business confidence is strong. With a low tax base, no sales tax and a significant entrepreneurial spirit, Alberta is full of businesspeople prepared to go out and take risks.

Saskatchewan

Economics: The resource sector was a pillar of strength last year, and activity should continue at a brisk clip this year, helping drive 3.9 per cent growth before moderating to a 3.3 per cent pace in 2012.

Commercial Banking: This Spring's provincial budget was yet another signal that Saskatchewan is back from the recession and looking strong. The unemployment rate is as strong as anywhere in Canada; at the 5 per cent range, the province is nearly at full employment. Many people who left the province in difficult times are coming back, and there is a strong influx of immigration as well. This is a strong reflection of the widespread enthusiasm for Saskatchewan's economic outlook.

Manitoba

Economics: Manitoba's economy is again threatened by Mother Nature. We've currently penciled in 2.6 per cent real GDP growth for 2011, up from 2.0 per cent in 2010, but that forecast could be revised down over the next month as we get a better, more complete look at the spring planting season.

Commercial Banking: Many of our clients remain optimistic—they are telling us that they are ready for change. They are less concerned with the high dollar than the pace of change—and that pace has been slow enough of late for them to cope.

Ontario

Economics: The Ontario economy has geared down after a strong post-recession rebound, and is poised to grow 2.7 per cent this year and 2.6 per cent in 2012, slightly below the national rate. A strong Canadian dollar will weigh on manufacturing and exports, while fiscal restraint will dampen growth in public-sector spending.

Commercial Banking – Ontario: Ontario's technology sector leads the way in innovation on a global scale, and is an engine of growth, particularly in the Kitchener-Waterloo and Ottawa regions. Province-wide, we expect to see slow, but steady growth continue in Ontario. It won't be the robust growth of a few years ago, because of the level of public debt we now carry, the end of infrastructure spending, the high Canadian dollar and continued U.S. weakness. However, our Ontario clients are resilient and hardworking, and strength will return in due course.

Commercial Banking – Greater Toronto Area: The fundamental economic underpinnings for growth are present but still not back to pre-recession levels. Among BMO clients, we are hearing expectations of tepid growth. They are generally optimistic, but they also acknowledge that the business environment is tougher than it has been in the recent past.

Quebec

Economics: Economic growth is expected to cool in Quebec this year to a 2.4 per cent pace, as fiscal restraint ramps up and the strong Canadian dollar weighs on exports and manufacturing. Growth will continue at a below-average pace through 2012.

Commercial Banking: Quebecers are clearly confident in their future prospects—not the least of which because of the significant benefit of a program unique in Canada that brings together industries, the Quebec government and the banking sector. Banks are bringing in the businesses, and Investment Quebec partially guarantees bank loans to those businesses. This reduces the risk to the banks, and gives companies the opportunity to expand, invest in facilities and expand salaries for employees.

New Brunswick

Economics: Economic growth in New Brunswick is slowing after advancing a robust 3.3 per cent in 2010. A shift from fiscal stimulus to modest restraint and strong Canadian dollar should hold growth to less than 2 per cent in 2011, before picking up slightly in 2012.

Commercial Banking: Some industries are showing good signs of strength, particularly in the research-intensive technology sector, software and mining for uranium and shale. Some smaller industries are showing growth within their particular niches as well, with companies in wellness/alternative health services (chiropractors, naturopaths, fitness companies) doing well. But some of the traditionally strong sectors of the province's economy still have challenges to overcome.

Nova Scotia

Economics: Economic growth in Nova Scotia will likely downshift to 1.9 per cent this year after below-average 2.1 per cent growth in 2010, as fiscal restraint and a slowdown in public sector capital spending will weigh on growth in the near term.

Commercial Banking: A significant number of major projects are either underway or planned. These projects are good for provincial revenue, and therefore good for the local economy. The Deep Panuke project by Encana, for instance, has brought in a significant amount of capital to Nova Scotia. In the future, we see more potential projects such as the military fleet renewal plan and the infrastructure for bringing energy from the Lower Churchill project in Newfoundland & Labrador to Nova Scotia.

Prince Edward Island

Economics: As with most of Atlantic Canada, economic growth in PEI will be relatively soft this year as stimulus spending winds down. Real GDP is expected to grow 2.0 per cent, matching the pace seen in 2010, before cooling slightly in 2012 when capital spending really begins to contract.

Commercial Banking: What might surprise outside observers most is the diversification of PEI's economy into new areas. Of particular interest is bio-science, a major focus of the provincial government. A major investment has been announced with the $4.65 million BioCommons Manufacturing Centre in Charlottetown. A trade mission headed to the UK last December with seven bioscience companies to help build and strengthen export ties. We can expect bioscience to be a key growth sector this year and beyond.

Newfoundland & Labrador

Economics: After posting the fastest rate of real GDP growth in the country in 2010, Newfoundland & Labrador will likely see growth cool from 6 per cent to 3.7 per cent this year, still ranking among the fastest-growing provinces in Canada. By 2012, growth will begin to decelerate more sharply as fiscal stimulus eventually winds down, but for now, the taps remain fully open.

Commercial Banking: Newfoundland & Labrador finds itself in an optimistic mood. The province weathered the recession particularly well relative to the rest of the country, which has helped give people a starting point for their optimism. But perhaps the most important factor encouraging residents of the province is the plethora of major projects, both those happening now and those on the way.

Media Conference Call

BMO will host a media conference call for the launch of the BMO Blue Book at 11 a.m. EDT today.

What:BMO Financial Group Launches BMO Blue Book
Who:Douglas Porter, Deputy Chief Economist, BMO Capital Markets
Bill Hogg, Vice President, Commercial Banking, Alberta
Victor Pellegrino, Vice President, Commercial Banking, Quebec
Jim Fallon, Vice President, Personal and Commercial Banking, Newfoundland & Labrador
When:Wednesday, June 1, 2011 at 11 a.m. EDT
Participant dial-in number: 416-641-2144/1-866-696-5910
Participant passcode: 3575533

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

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